Philippines First Sustainable Development Policy Loan

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The World Bank

Philippines First Sustainable Recovery DPL (P178634)
Document of
The World Bank
FOR OFFICIAL USE ONLY

Report No: PGD401
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
PROGRAM DOCUMENT FOR A
PROPOSED LOAN
IN THE AMOUNT OF US$ 750 MILLION TO

REPUBLIC OF THE PHILIPPINES

FOR THE
PHILIPPINES FIRST SUSTAINABLE RECOVERY DEVELOPMENT POLICY LOAN
May 16, 2023

Macroeconomics, Trade and Investment Global Practice

Finance, Competitiveness and Innovation Global Practice
East Asia And Pacific Region
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.
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Republic of the Philippines

GOVERNMENT FISCAL YEAR
January 1 – December 31
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of May 10, 2023)
Currency Unit: Philippine peso
US$1.00 = PHP 55.55
ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank IMF International Monetary Fund
ARTA Anti-Red Tape Authority IPCC Intergovernmental Panel on Climate Change
ASA Advisory services and analytics IRR Implementing Rules and Regulations
ASEAN Association of Southeast Asian Nations IT Information technology
BIR Bureau of Internal Revenue JMC Joint Memorandum Circular
BOP Balance of Payments LCC Life cycle cost
BOT Build-Operate-Transfer LCCA Life cycle cost analysis
BSP Bangko Sentral ng Pilipinas LCR Low carbon, resilient
BTr Bureau of the Treasury LGU Local government unit
Budget and Treasury Management
BTMS MAGA Material Adverse Government Action
System
CCC Climate Change Commission MSME Micro, small, and medium enterprises
Country Climate and Development National Economic and Development
CCDR NEDA
Report Authority
CES Clean Energy Scenario NGA National government agencies
CGA Contract granting authority NPL Non-performing loans
CL Circular letter NREP National Renewable Energy Program
CO2 Carbon dioxide NSWMC National Solid Waste Management Council
COA Commission on Audit NTA National tax allotment
COVID Coronavirus disease NTM Non-tariff measures
CPF Country partnership framework ODA Official development assistance
Corporate Recovery and Tax Incentives
CREATE OE Obliged enterprises
for Enterprises
Comprehensive Roadmap for the Electric Organization for Economic Cooperation and
CREVI OECD
Vehicle Industry Development
CSE Common use supplies and equipment OLS Ordinary least squares
CY Current year PA Prior actions
DA Department of Agriculture PAP Programs, activities, and projects
DAO Department Administrative Order PCB Program convergence budgeting
DC Department Circular PCIC Philippines Crop Insurance Corporation
DBM Department of Budget and Management PDMF Project Development and Monitoring Facility
Department of Environment and Natural
DENR PDO Project Development Objectives
Resources
DOE Department of Energy PDP Philippine Development Plan
Public Expenditure and Financial
DOF Department of Finance PEFA
Accountability
DOTr Department of Transportation PEP Philippine Energy Plan
DPF Development policy financing PFM Public Financial Management
DPL Development policy loan PFRAM PPP Fiscal Risk Assessment Model
Philippine Government Electronic
DTI Department of Trade and Industry PhilGEPS
Procurement System
EAP East Asia Pacific PHP Philippine peso
Passive Income and Financial Intermediary
EO Executive Order
PIFITA Taxation
EPR Extended Producer Responsibility PIP Public Investment Program
EV electric vehicle PPI participation in infrastructure
Electric Vehicle Industry Development
EVIDA PPIA Philippine Plastics Industry Association
Act
FDI Foreign Direct Investment PPP Public private partnership
FIT Feed-in tariffs PRO Producer Responsibility Organization
FMIS Fiscal management information system PS Procurement Service
FX Foreign exchange PSA Public Service Act
FY Fiscal year PS RA Procurement Service Republic Act
GAA General Appropriations Act RAS Reimbursable Advisory Services
Registry System for Basic Sectors in
GCRF Global Crisis Response Framework RSBSA
Agriculture
GDP Gross domestic product RE Renewable energy
GEAP Green energy auction program REA Renewable Energy Act
GHG Greenhouse gas RWAN Rice Watch Action Network
GNI Gross national income SCD Systematic Country Diagnostic
GOP Government of the Philippines SEC Securities and Exchange Commission
GPP Green Public Procurement SPP Sustainable Public Procurement
GPPB Government Procurement Policy Board SUP Single use plastic
GPRAM General preferred risk allocation matrix TA Technical assistance
Tax Reform for Acceleration and Inclusion
GRID Green, resilient, inclusive development TRAIN
Act
GRS Grievance Redress Service TSO Technical Support Office
GW Gigawatt TCO Total Cost of Ownership
International Bank for Reconstruction
IBRD US$ United States dollar
and Development
IC Insurance Commission VAT Value-added tax
ICC Investment Coordination Committee WB World Bank
ICE Internal Combustion Engine WBG World Bank Group
Information and communication
ICT
technology
Regional Vice President: Manuela V. Ferro
Country Director: Ndiame Diop
Regional Director: Hassan Zaman
Practice Manager (s): Lars Christian Moller, Cecile Thioro Niang
Task Team Leader (s): Ralph Van Doorn, Jaime Andres Frias, Kevin C. Chua
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REPUBLIC OF THE PHILIPPINES
PHILIPPINES FIRST SUSTAINABLE RECOVERY DPL
TABLE OF CONTENTS
SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3
1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5

2. MACROECONOMIC POLICY FRAMEWORK....................................................................................7
2.1. RECENT ECONOMIC DEVELOPMENTS............................................................................................ 7
2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ........................................................ 11
3. GOVERNMENT PROGRAM ........................................................................................................ 18
4. PROPOSED OPERATION ............................................................................................................ 19
4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION .......................................... 19
4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS .................................................. 21
5. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY ........................................... 40
4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS ............................... 41
6. OTHER DESIGN AND APPRAISAL ISSUES .................................................................................... 41
5.1. POVERTY AND SOCIAL IMPACT .................................................................................................... 41
5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS ................................. 45
5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS .......................................................................... 48
5.4. MONITORING, EVALUATION AND ACCOUNTABILITY .................................................................. 50
7. SUMMARY OF RISKS AND MITIGATION ..................................................................................... 51
ANNEX 1: POLICY AND RESULTS MATRIX .......................................................................................... 53
ANNEX 2: FUND RELATIONS ANNEX .................................................................................................. 57
ANNEX 3: LETTER OF DEVELOPMENT POLICY..................................................................................... 61
ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE .................................................. 64
The Philippines First Sustainable Recovery Development Policy Loan was prepared by an IBRD and IFC team led by Ralph Van Doorn
(Sr. Economist), Kevin Chua (Sr. Economist) and Jaime Frias (Sr. Economist), and comprising Dominic Reyes Aumentado (Senior
Procurement Specialist), Maria Lourdes Baclagon (Sr. Investment Officer), Agnes Chung Balota (Environmental Specialist), Thuy
Thu Bui (Sr. Country Officer), Gerlin May Catangui (Sr. Economist), Yoonyoung Cho (Sr. Economist), Kimberly May Baltao Chandra
(Consultant), Yew Keat Chong (Sr. Economist), Kevin Cruz (Economist), Hope Arandela Gerochi (Infrastructure Specialist), Karl
Jandoc (E T Consultant), Anuja Kar (Sr. Agriculture Economist), Uzma Khalil (Sr. Financial Sector Specialist), Heejin Lee (ET
Consultant), Feng Liu (Program Leader and Sr. Energy Specialist), Davit Melikyan (Sr Public Sector Specialist), Thu Thi Le Nguyen
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(Sr. Environmental Specialist), Ou Nie (Financial Sector Economist), Sharon Piza (Economist), John Luke Plevin (Senior Financial
Sector Specialist), Addepalli Sita Ramakrishna (Sr. Environmental Specialist), Ruth Rodriguez (Social Protection Specialist), Junu
Shrestha (Sr. Environmental Specialist), Bipulendu Narayan Singh (Sr. Energy Specialist), Tatiana Skalon (Financial Sector
Specialist), Tomas Sta. Maria (Sr. Financial Management Specialist), Jemima Sy (Lead Public Private Partnerships Specialist), Sri
Kumar Tadimalla (Sr. Transport Specialist), Mio Takada (Sr. Agriculture Economist), Radu Tatucu (Sr. Financial Sector Specialist),
Tao Wang (Sr. Environmental Specialist), and Melissa Yan (Procurement Specialist), with administrative support from Geraldine
Asi (Team Assistant), Zoe Escobar (Team Assistant), Gia Mendoza (Program Assistant), Ernie Banag Monteverde (Program
Assistant), Jacqueline Pacampara (Temporary), Mildren Penales (Program Assistant), Venessa Vaishali Sarkar (Team Assistant),
and Teresita Fallado Victoria (Program Assistant). The team worked under the guidance of Ndiame Diop (Country Director,
EACPF), Hassan Zaman (Regional Director, EEADR), Lars Christian Moller (Practice Manager, EEAM2), and Cecile Thioro Niang
(Practice Manager, EEAF2). Comments and input were also gratefully received from Souleymane Coulibaly (Program Leader,
EEADR), Madhu Raghunath (Sector Leader, SEADR), Achim Fock (Operations Manager, EACPF), and Rohan Bhargava (E T
Consultant). The team gratefully acknowledges the excellent collaboration of the Government of the Philippines. The peer
reviewers were Rong Qian (Senior Economist), Muthukumara Mani (Lead Environmental Economist), Mariem Malouche (Senior
Economist), and Elena Ianchovichina (Lead Economist).
The World Bank
SUMMARY OF PROPOSED FINANCING AND PROGRAM
BASIC INFORMATION
Project ID Programmatic If programmatic, position in series

P178634 Yes 1st in a series of 2
Proposed Development Objective(s)
The DPL series aims to support the Government of the Philippines' reforms to: 1) accelerate the economic recovery
and boost long-term growth; and 2) protect the environment and improve climate resilience.
Organizations
Borrower: DEPARTMENT OF FINANCE
Implementing Agency: Climate Change Commission, Bureau of the Treasury, Department of Agriculture,
Department of Trade and Industry, Department of Transportation, Bangko Sentral ng
Pilipinas, Department of Energy, Anti-Red Tape Authority, Department of Labor and
Employment, Government Procurement Policy Board, National Economic and
Development Authority, Public-Private Partnership Center, Department of
Environment and Natural Resources
PROJECT FINANCING DATA (US$, Millions)
SUMMARY
Total Financing 750.00
DETAILS
International Bank for Reconstruction and Development (IBRD) 750.00
INSTITUTIONAL DATA
Climate Change and Disaster Screening
This operation has been screened for short and long-term climate change and disaster risks
Overall Risk Rating
Moderate
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Results
Indicator Name Baseline Target

1. Annual average foreign investment in Public 0.55 percent of GDP (2017- 0.76 percent of GDP (2023-2025 average)
Service Sectors (percent of GDP). 2022 average)
2. Time needed to reach final decision on PPPs by the 29.9 months (2022) 12 months (2025)
ICC (Investment Coordination Committee) from
receipt of a complete and compliant project proposal
(months).
3. Annual average development cost of investment in 0.02 percent of GDP (2017- 0.06 percent of GDP (2023-2025 average)
solar projects (percent of GDP). 2022 average)
4. Share of electricity generation from renewable 22 percent (2021) 28 percent (2025)
energy (percent).
5. Cumulative green jobs supported with incentives 0 (2022) 4,000 (2025)
under the Green Jobs Act since 2023, jobholders
disaggregated by sex.
6. Sustainability-related lending (loans to promote PHP 232 billion or (US$ 4.3 PHP 255 billion (or US$ 4.7 billion) (2025)
Renewable Energy and Energy Efficiency) by Domestic billion) (2022)
Systemically Important Banks (D-SIBs) (US$ billion)
7. New sustainable finance instruments (e.g., green 0 percent (2022) 100 percent (2025)
bonds, sustainability bonds, sustainability-linked
bonds) issued by domestic companies in line with the
sustainable finance taxonomy (percent)
8. Recovery of plastic packaging as share of amount 0 percent (2022) 40 percent (2025)
introduced into the market by Obliged Enterprises
(OEs), Collectives, and Producer Responsibility
Organizations (PROs) (percent).
9. Share of submitted EPR implementation programs
0 percent (2022) 5 percent (2025)
with component on gender equality (percent).
10. Share of electric vehicles in the annual purchases Less than 1 percent (2022) At least 10 percent (2025)
of new cars by National Government Agencies
(percent).
11. Share of the 10 non-CSEs (Common use supplies 0 percent (2022) At least 40 percent (2025)
and equipment) have become mandatory under the
GPP (percent).
12. Financial resilience of Philippine Crop Insurance Not compliant (2022) Compliant (2025)
Corporation (PCIC) measured by compliance with
Insurance Commission (IC) regulation.
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IBRD PROGRAM DOCUMENT FOR A PROPOSED

FIRST SUSTAINABLE RECOVERY DEVELOPMENT POLICY LOAN TO THE REPUBLIC OF THE PHILIPPINES
1. INTRODUCTION AND COUNTRY CONTEXT
1. This program document proposes the first operation in the amount of US$ 750 million of a
programmatic series of two Development Policy Loans (DPL) supporting a sustainable economic recovery.
The Program Development Objectives (PDOs) and pillars of the operation are to support Government of the
Philippines’ (GOP) reforms to: 1) accelerate the economic recovery and boost long-term growth; and 2)
protect the environment and improve climate resilience. Pillar 1 includes reforms to attract private
investment in infrastructure and renewable energy (RE) and promote green jobs and investments. Pillar 2
supports reforms to enhance plastic waste management, promote green transport and procurement, and
strengthen the resilience of the agriculture sector.
2. Consistent and robust economic growth from 2012 to 2019 has enabled a large part of the
population to escape poverty. The Philippines, a lower middle-income country, has been one of the most
dynamic economies in the East Asia Pacific (EAP) region, with GNI per capita more than tripling over the past
two decades to US$3,550 in 2021. Poverty incidence sharply declined from 25.2 percent in 2012 to 16.7
percent in 2018, while inequality fell with the Gini index declining from 46.5 to 42.3 from 2012-2018.
However, this was partially reversed by the COVID-19 pandemic, as growth contracted significantly in 2020.
The economy has rebounded strongly in the years since, expanding at 5.7 percent and 7.6 percent
respectively in 2021 and 2022, buoyed by resilient domestic demand and a recovery in the external
environment.
3. Advancing transformational economic reforms remains an imperative to not only accelerate but
also sustain the economic recovery and boost long-term growth. Despite the strong rebound from the
pandemic, the economy faces external and domestic risks that can hamper its growth momentum. High
global commodity prices, disruption of global supply chains, and tightening global financial conditions have
contributed to rising inflation, weaker exchange rates, and tighter monetary policy in the Philippines. The
higher interest rate environment, whose impact on credit growth comes with a lag, risks dampening private
investments at a time of narrower fiscal space. Reforms to attract the necessary private investments and
investing in the green economy and RE can unlock new sources of economic growth.
4. Climate change poses major risks to growth and development in the Philippines and will affect the
country’s ability to meet its development goals and pursue green, resilient, and inclusive development.
The country is exposed to frequent natural disasters and thus prone to the impacts of climate change, which
cause severe economic and fiscal shocks and threaten the country’s socioeconomic development. Without
mitigation action, climate change will impose substantial economic and human costs, affecting the poorest
households the most. The World Bank’s 2022 Philippines Country Climate and Development Report (CCDR)
estimates that the economic damages in the country could reach up to 7.6 percent of GDP by 2030 and 13.6
percent of GDP by 2040. All sectors will be affected, with capital-intensive sectors likely to suffer most from
extreme events and agriculture suffering the most from slow-onset trends, while the private sector will be
severely affected by both. Adapting to the risks of climate change, including extreme events and slow-onset
problems, is thus critical for the long-term development goals.
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5. Although the Philippines is a relatively low emitter of greenhouse gases (GHGs), emissions are
expected to rise substantially over the next decade.1 The overall share of fossil fuels in the primary energy
supply increased from 60 to 67 percent from 2010 to 2019 due to the rapid growth of coal-fired power
generation and sustained growth in oil demand from transport. The energy sector accounts for about half of
total emissions, while agriculture is the second largest source, accounting for a quarter. Transport is the
biggest fossil fuel-consuming sector – and the largest source of air pollution, causing an estimated 66,000
premature deaths a year – with GHG emissions likely to quadruple by 2050 under current scenarios and
policies. Plastic waste management is also a growing problem in the country, which is among the top five
emitters of plastic waste in the ocean, causing marine pollution and flood risks in drainage infrastructure.
6. The Philippines also continues to face a complex range of structural challenges limiting its long-
term growth potential. While GNI per capita more than tripled over the past two decades, median incomes
have increased at a much slower rate than GDP, and the pace of quality job creation has remained
inadequate. To achieve its long-term vision of AmBisyon Natin 2040, the Philippines will need to overcome
its longstanding constraints and challenges to sustain high levels of growth, increase quality job creation as
well as strengthen climate and ecosystem resilience. Among these are (i) limited market competition in
several key sectors as regulations create high barriers to entry; (ii) underinvestment in infrastructure, (iii) low
foreign direct investment (FDI) resulting in part from regulatory restrictions, and (iv) low growth in the
agriculture sector, in part due to the country’s vulnerability to natural disasters and weakness of relevant
institutions.2
7. To steer the Philippine economy back on its high-growth trajectory post-pandemic, facilitate the
transition to a low carbon economy as well as strengthen climate and ecosystem resilience, the GOP is
committed to deliver the reform priorities outlined in the Philippine Development Plan (PDP) 2023–2028.
The PDP calls for fundamental transformations across economic, institutional, environmental, and social
sectors, with the overarching goals of reinvigorating job creation and accelerating poverty reduction towards
a prosperous, inclusive, and resilient society. Among the main priorities outlined in the plan to invigorate
growth are ensuring macroeconomic stability; promoting trade and investment; enhancing competition and
improving regulatory efficiency; increasing employment opportunities; and expanding and upgrading critical
infrastructures. To promote low-carbon, climate and ecosystem resilient growth, the GOP has developed a
comprehensive set of policies and strategies in the PDP across low carbon economy transition and ecosystem
resilience as well as climate and disaster risk resilience, which mirror the recommendations in the CCDR.
These priorities will be underpinned by several cross-cutting strategies, including strategies to enhance
connectivity and increase partnerships with the private sector, in which FDI will be harnessed as a key enabler
of the country’s long-term climate actions.
8. The proposed DPL series is expected to support the government’s reform efforts in accelerating
the economic recovery, boosting long-term growth, and protecting the environment and improving
climate resilience. To steer the economy back on its high-growth trajectory in a fiscally constrained
environment, Pillar 1 of proposed DPL series is focused on supporting ongoing government reforms to
increase FDI in solar and wind energy as well as overall demand for RE, attract private investment in public
infrastructure and improve the public-private partnership (PPP) framework. These reforms would help lay
the foundation for realizing the country’s long-term development aspirations by facilitating a transition to a
low-carbon economy and achieving greater energy security while reducing energy costs and harnessing
1 The 2022 CCDR projects an increase in the GHG emissions from 234 MtCO2e in 2020 to 399 MtCO2e in 2030.
2 World Bank, 2019, Systematic Country Diagnostic (SCD) of the Philippines.
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private investment to upgrade critical public infrastructures. Pillar 2 supports reforms to enhance plastic
waste management, promote adoption of electric vehicles (EVs), mainstream green procurement, and
reduce climate-related fiscal risks from the agriculture sector. Collectively, these reforms would contribute
to the Philippines’ climate change mitigation and pollution management, and improve its resilience to climate
risks.
9. The reforms supported by the proposed DPL series are in line with the Bank’s 2019-2023 Country
Partnership framework (CPF) and corporate priorities. The Prior Actions contribute to the objectives of the
CPF, namely 5) Promote regulatory reforms to enhance competitiveness; 6) Improved efficiency of public
service sectors in selected areas; 7) Improved income opportunities in agriculture; and 10) Increased
resilience to natural disasters and climate change. They are also tagged to Pillar 4: Strengthening Policies,
Institutions and Investments for Rebuilding, and Pillar 3: Strengthening Climate Resilience of the Global Crisis
Response Framework (GCRF). The reforms are aligned with the green, resilient, and inclusive development
(GRID) framework and aim to contribute to climate change mitigation and adaptation and to attract private
investment.
10. These reforms will be implemented by a new administration, which took office in July 2022 and
has emphasized economic policy continuity. The new administration is providing reform continuity through
the implementation of recently approved laws. In particular, this applies to investment, plastics, and revenue
reforms. Recognizing the fiscal constraints and the need for private sector involvement in infrastructure
investment, it has committed to using PPPs and is implementing improvements to the PPP framework. The
World Bank has worked with both administrations to keep these reforms on the agenda and to support their
implementation.
11. The macroeconomic policy framework is adequate for the purpose of the proposed operation. The
growth outlook is positive, anchored on buoyant domestic activities, a recovering services sector, and a
sustained infrastructure investment push. The Bangko Sentral ng Pilipinas (BSP) has responded to rising
inflation with monetary tightening, consistent with its inflation-targeting objective and responsive to global
interest rate movements. Under its helm, the country has accumulated adequate foreign exchange reserves
that provide a cushion against the impact of global shocks. It is expected to maintain a market-determined
exchange rate regime as the first line of defense against external shocks. On fiscal policy, the authorities have
publicly laid out its medium-term expenditure plan, reflecting a steadily declining fiscal deficit until 2028.
Finally, the government’s commitment to accelerate the pace of structural reforms as part of the recovery
will further promote competitiveness and support growth. National government debt is sustainable owing
to the expected growth recovery and fiscal consolidation.
2. MACROECONOMIC POLICY FRAMEWORK
2.1. RECENT ECONOMIC DEVELOPMENTS
12. The post-pandemic recovery is underway, as strong domestic demand outweighed external
headwinds. The economy grew by 7.6 percent in 2022 (5.7 percent in 2021). The substantial reduction in
COVID-19 cases facilitated a full economic reopening which removed the stringent containment measures
that were in place for nearly two years. The reopening led to the release of pent-up demand, which fueled
the return of domestic activity, improved employment outcomes, and recovery of household incomes. The
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strong domestic recovery tempered the impact of global headwinds from Russia’s invasion of Ukraine, high
global commodity prices, softening merchandise exports, and tightening global financing conditions. On a
seasonally adjusted basis, output for 2022 has surpassed its pre-pandemic level, although the pace of
recovery has been slower than some regional peers.
13. The economic reopening buoyed domestic activity, fueling robust private consumption growth and
the recovery of the services sector, which drove the economic recovery. On the supply side, the reopening
benefitted the services sector and drove growth in the wholesale and retail trade, tourism, and tourism-
related sectors such as transportation, accommodation, and food services. Private construction activities
drove industry growth, although decelerating global demand for goods weighed on exports and
manufacturing. Meanwhile, the tepid performance of agriculture continued owing to typhoons, rising input
costs, and low productivity. On the demand side, private consumption supported economic activity despite
high inflation, driven by improved employment outcomes, steady remittances, and a recovery in household
incomes. Meanwhile, net exports contributed negatively to growth, amid a slowdown in merchandise
exports, and robust import growth which supported the domestic recovery (Table 1).
14. The BSP tightened monetary policy, as the combination of global inflationary pressures and high
domestic food inflation threatened to de-anchor inflation expectations. Headline inflation averaged 5.8
percent in 2022 and peaked at 8.6 percent in January 2023. It has since slowed down to a still-high level of
6.6 percent in April 2023, well above the 2-4 percent target of the BSP. High inflation was fueled by elevated
food prices, driven by domestic food supply shortfalls, and housing, water, and utilities due to elevated power
and water rates, and higher rent. Moreover, the economic recovery has fueled demand-side price pressures
as the output gap turns positive, with core inflation averaging 7.8 percent in the first four months of 2023.
To reduce the impact of increasing global commodity prices, the government provided fuel subsidies to
vulnerable sectors and temporarily lowered the tariff rates for the importation of key agricultural
commodities and coal. In addition, the BSP has raised the key policy rate by 425 basis points to 6.25 percent.
15. The current account deficit widened from 1.5 percent of GDP in 2021 to 4.4 percent in 2022. This
was driven by a wider trade deficit, which increased from 9.8 percent of GDP in 2021 to 13.3 percent of GDP
in 2022. Strong merchandise import growth amid recovering domestic activity and rising global inflation
outweighed and soft merchandise export growth fueled by external headwinds (e.g., tepid demand from
China, overall weakness in global activity). To finance the current account deficit, the financial account
recorded net inflows of 3.1 percent of GDP in 2022 due primarily to external borrowing and trade credits.
Meanwhile, foreign direct investment (FDI) inflows fell from 3.0 percent of GDP in 2021 to 2.3 percent of
GDP in 2022 amid fears of a global economic slowdown, high inflation, and tighter financing conditions. The
combination of rising interest rate differential between the U.S. and the Philippines, capital outflows, and
sharp increase in the current account deficit led to a 9.6 percent depreciation of the Philippine peso against
the US dollar in 2022. Meanwhile, gross international reserves fell from 9.7 months of imports in December
2021 to 7.2 months in December 2022. The decline in reserves was fueled by exchange rate intervention by
the BSP, as the peso reached a record low in end-September, and the National Government’s payment of its
foreign currency debt obligations.
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Table 1. Supply and Demand-side Contributions to Growth
Sources: Government of the Philippines for actual data and World Bank for projections.
Note: Numbers may not add up due to rounding errors or statistical discrepancy.
16. The fiscal deficit narrowed as the government exceeded its revenue collection targets while
unwinding pandemic support. The deficit eased from 8.6 percent of GDP in 2021 to 7.3 percent in 2022.
Public spending declined from 24.1 percent of GDP in 2021 to 23.4 percent in 2022 as current operating
expenditures fell due to the government reducing pandemic support. Meanwhile, revenue collection rose to
16.1 percent of GDP in 2022 (15.5 percent over the same period in 2021), driven by a surge in tax collections
amid the domestic recovery. The Bureau of Customs exceeded its collection target amid stronger demand
for imported goods, higher excise tax collections due to elevated global commodity prices, and more
stringent anti-smuggling measures. Despite the large deficit and peso depreciation, national government
debt increased only moderately from 60.4 percent of GDP at end-2021 to 60.9 percent of GDP as of end-
2022 (Table 2) benefitting from fast growth and low real interest rates. However, national government debt
remains significantly higher than the 39.6 percent of GDP recorded prior to the COVID-19 pandemic in 2019.
The debt-portfolio mix is mainly from domestic sources (68.6 percent), and medium- and long-term (97.0
percent) as of end-2022.
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Table 2. Key Economic Indicators
2020 2021 2022 1/ 2023 2024 2025 2026

Actual Projected
In percent of GDP, unless otherwise stated.
Growth and inflation
Gross domestic product (percent change) -9.5 5.7 7.6 5.6 5.9 5.9 6.0
Inflation (period average) 2.4 3.9 5.8 5.7 3.6 3.0 3.0
Savings and investment

Gross domestic savings 11.2 12.1 12.0 11.3 11.0 10.4 10.3
Gross domestic investment 21.4 22.3 22.9 23.3 24.5 26.2 27.7
Public sector
National government balance -7.6 -8.6 -7.3 -6.0 -5.1 -4.1 -3.9
Primary balance -5.5 -6.4 -5.0 -3.6 -2.6 -1.3 -1.1
Total revenue (government definition) 2/ 15.9 15.5 16.1 15.8 15.8 16.0 16.2
Tax revenue 14.0 14.1 14.6 14.3 14.3 14.4 14.5
Total spending (government definition) 2/ 23.5 24.1 23.4 21.8 21.0 20.1 20.1
National government debt 3/ 54.6 60.4 60.9 61.3 62.0 61.5 61.0
Balance of payments
Total exports 33.1 33.0 32.1 30.5 30.6 31.4 32.4
Total Imports 29.9 34.6 36.1 35.4 36.7 38.2 40.0
Remittances 9.2 8.9 8.9 8.9 9.0 9.1 9.1
Current account balance 3.2 -1.5 -5.4 -4.2 -3.5 -3.0 -2.9
Foreign direct investment 1.9 3.0 2.3 2.4 2.6 2.8 2.9
Portfolio Investment 0.5 -2.6 1.3 1.1 1.0 0.8 0.7
International reserves
Gross official reserves (billions of dollars) 4/ 110.1 108.8 96.1
Gross official reserves (months of imports) 5/ 12.3 9.7 7.3
Foreign Exchange
US dollar (end-of-period) 48.0 50.8 56.1
US dollar (average) 49.6 49.3 54.5
Sources: Government of the Philippines for actual data and World Bank for projections.
1/ Balance of payments indicators are estimates.
2/ Revenues defined as “all cash inflows of the national government treasury which are collected to support government
expenditures but do not increase liabilities.” Expenditures defined as “are obligations that the government incurs that must be paid
during or after the year when they were incurred.”
3/ Including borrowing for the Bond Sinking Fund.
4/ Including gold.
5/ Defined as the total of goods and services imports and primary income that can be financed by reserves.
17. Bank lending to the private sector expanded and the financial system has been broadly stable with
adequate capital and sufficient buffers. Amid economic reopening, private credit grew by 10.8 percent in
December 2022, up from 3.8 percent in the same period last year and surpassing the increase in borrowing
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reported in March 2020. The banking sector's overall capital adequacy ratio remains stable at about 17
percent, well above the BSP’s regulatory threshold of 10 percent. On asset quality, the banking system’s gross
non-performing loan (NPL) ratio has been steadily declining since the peak of the pandemic (4.5 percent in
July and August 2021) to 3.3 percent as of January 2023, though still above the 2.0 percent level in end-2019.
The overall liquidity of the banking sector is sufficient to absorb funding shocks with a liquidity coverage ratio
of 185.7 percent of end-December 2022. Banking sector profitability continued to improve and has now
surpassed pre-pandemic levels: return on equity of the sector stood at 11.8 percent in Q4 2022 compared to
9.0 percent in Q4 2021 and return on assets at 1.4 percent compared to 1.1 percent in Q4 2021. The
government deployed a broad range of financial sector policy measures3 to withstand the impact of the
pandemic. As of 2023, most temporary relief measures introduced during the COVID-19 pandemic have
already lapsed save for those that incentivize lending to MSMEs.4 Loans to MSMEs represent a small share
of the overall loan portfolio (0.01 percent of the Total Loan Portfolio as of September 2022). Forward-looking
indicators of asset quality have deteriorated: restructured loans to total loans increased from 0.41 percent
in January 2020 to 2.6 percent in December 2022. However, the banking sector appears to have sufficient
buffers as the level of provisioning stands at 106.3 percent of NPLs as of January 2023.
2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY
18. While the economy outperformed expectations in 2022, growth will moderate over the medium-
term averaging 5.8 percent in 2023-26. Over the medium-term, growth will remain anchored on domestic
demand, an increase in investment amid the passage of recent reforms, and a public investment program
that remains supportive of economic recovery. However, growth is expected to decelerate to 5.6 percent in
2023 as domestic demand is expected to moderate in the near term, amid persistently high inflation and
continued monetary policy tightening. Private consumption growth will weaken in 2023, as pent-up demand
fades and as inflation is expected to remain above target at 5.7 percent in 2023, while monetary policy
tightening continues. In addition, tighter financing conditions and elevated uncertainty from a weak external
environment will dampen private credit growth and subdue investments. While public investments will
remain high, public investment growth is expected to moderate slightly in line with fiscal consolidation as
the public infrastructure program declines from the actual level of 5.8 percent of GDP in 2022 to an average
of 5.1 percent in 2023-25. Moreover, global growth is expected to slow in 2023, reflecting synchronous policy
tightening aimed at containing high inflation, the deterioration of financial conditions, and disruptions due
to Russia’s invasion of Ukraine.
3 As of December 2021, around 57 monetary, payment system, liquidity, and prudential measures were deployed to support the
system’s resilience to withstand the impact of COVID-19. These included lowering of reserve requirements to 12 percent and
inclusion of Small and Medium-Scale Enterprise (SME) loans in the calculation of reserve requirements; a 60-day loan moratorium
on all bank loan repayments that expired in March 2021, and a strong form of forbearance that delays the recognition of NPLs and
rolls forward provisioning for five years.
4 As of mid-2022, BSP internal analysis suggests that the expiration of the remaining forbearance measures is unlikely to cause a
significant increase in the level of NPL. The relief measures that were extended until end June 2023 include the reduced credit risk
weight for current loans to MSMEs and the utilization of loans to MSMEs as alternative form of compliance with the reserve
requirements.
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19. The impact of the investment reforms can offset the reduction in post-pandemic potential growth.
Firm closures have contributed to permanent income losses.5 Some surviving firms face impaired balance
sheets and are deferring productive investments. Disruption in education and a higher incidence of
malnutrition among the poor are eroding human capital and hurting people’s future earning potential. The
pandemic has had an adverse impact on the economy, lowering the long-term growth potential to a
projected 5.7 percent, on average, in 2020–29, below the pre-pandemic estimate of more than 6.0 percent.
The challenge is to limit the scarring by capitalizing on growth opportunities such as the acceleration of
digitalization and implementing a catch-up plan to mitigate the adverse socio-economic impacts of the
pandemic. The reforms supported by this operation are expected to improve the Philippines’ potential
growth by facilitating an increase in private investment6 and provide funding to climate adaptation and
mitigation measures which could reduce fiscal risks associated with natural disasters.
20. The current account balance is expected to remain in deficit over the medium term financed by
net FDI inflows and external borrowing. Import growth is expected to remain elevated over the medium
term, as the authorities remain committed to the public infrastructure investment agenda. External demand
for merchandise exports is expected to moderate in 2023 amid a sharp slowdown in global activity, with
better prospects in 2024-25, as global growth steadily improves. However, services exports will remain
robust due to the recovery of international tourism and strong growth in the Business Process Outsourcing
sector. Growth of remittance inflows is projected to moderate to 3.0 percent in the medium term amid the
deceleration in global activity. The current account deficit is expected to be financed primarily by net FDI
inflows as well as net portfolio inflows and international bond issuances. After approving key investment
laws, the government is preparing regulations to implement the reforms to attract more FDIs into the
country.
Table 3. External Financing and Sources (2020 – 2025)
Source: Government of the Philippines for actual data and World Bank for projections.
5 A 2022 World Bank Firm Survey shows that in March 2022, nearly 28 percent of firms in the Philippines remain closed due to the
pandemic.
6 The Philippines has received initial investment pledges of US$13.7 billion in wind and solar energy after the implementing the
reform to allow 100 percent foreign ownership in solar and wind projects. https://solarquarter.com/2023/01/09/the-philippines-
gets-13-7b-investment-pledges-from-chinese-companies-for-renewable-energy/
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21. Monetary policy is expected to further tighten in the face of inflationary pressure and interest rate
hikes in advanced economies. Headline inflation is expected to remain elevated at 5.7 percent in 2023,
before declining to within the BSP’s target range of 2-4 percent by 2024. Inflation will be driven by elevated
food and fuel prices arising from production challenges in the domestic food supply and exacerbated by
Russia’s invasion of Ukraine. The current episode of synchronous monetary policy tightening globally has led
to the tightening of global financial conditions, capital outflows, and currency depreciation from emerging
economies. These external challenges have channeled through the Philippines in the form of high inflation,
peso depreciation, higher interest rates, and increased capital market volatility. The BSP is expected to
continue to follow its mandate of price stability and tighten monetary policy to ensure inflation expectations
remain anchored and within the target range.
22. The pace of public spending is expected to decelerate in line with the medium-term fiscal
consolidation program. Although the Philippines does not have strict fiscal rules, the authorities expanded
the coverage of its medium-term fiscal framework to 2028 to establish its commitment to fiscal
consolidation. The Philippines has had a history of strong commitment to fiscal discipline, as its fiscal deficit
averaged 2.0 percent of GDP between 2011-2019. Over the forecast horizon, the fiscal deficit is expected to
decline to 3.9 percent of GDP by 2026, as the early stages of fiscal consolidation will be led by the decline in
public spending. Total expenditure is expected to decline from 23.4 percent of GDP in 2022 to 20.1 percent
in 2026. The reduction is driven by an anticipated decline in recurrent operating expenditure from 18.0
percent of GDP in 2022 to 15.0 percent in 2026, gradually returning to pre-pandemic levels. This decline will
be driven by the unwinding of pandemic support, the impact of the national government’s functional
devolution to local government units (LGUs), and efforts to pursue a leaner and more efficient bureaucracy.
The government is currently pursuing reforms that aim to improve the efficiency of public spending through
the Budget Modernization Bill, which institutionalizes the cash-based budgeting system which aims to
strengthen fiscal discipline and improve the efficiency of public spending. In addition, the Government
Rightsizing Bill is currently in the legislative pipeline, which aims to create a leaner and more efficient
bureaucracy by removing redundancies in functions within the government. Meanwhile, while the
government remains committed to its public infrastructure investment push, as capital outlays are expected
to decline from 5.9 percent of GDP in 2022 to 5.1 percent in 2026.
23. The government’s efforts to pursue fiscal consolidation through a strategic reduction in public
expenditures will be complemented by efforts to improve revenue collection. Tax revenues are expected
to decline to 14.3 percent of GDP in 2023 amid slower economic growth, lower import duties due to a
moderation in global commodity prices, and the second tranche of reductions in personal income taxes from
the TRAIN law. Tax collections are expected to reach pre-pandemic levels in 2026, amid sustained growth,
and efforts to improve tax collection through tax policy and administration reforms. In order to support its
fiscal consolidation target for revenue, the government has proposed a strategic framework in the PDP. The
government is expected to increase tax revenues by 0.5 percent of GDP over the medium-term through
several tax policy and administration measures that are currently in the legislative pipeline. These measures
include the introduction of a VAT on digital services, the new fiscal regime for the mining sector, a tax on
single use plastics, the removal of excise tax exceptions on pickup trucks, and the modernization of tax
administration through the Ease of Paying Taxes bill. The baseline projection currently incorporates the
passage of three priority tax policy measures7 is expected to increase revenues by an estimated annual
7These measures include the bill which will impose an excise tax on disposable plastic bags, a bill which seeks to impost a value
added tax on foreign digital service providers, and package 4 of the Comprehensive Tax Reform Program which will remove the tax
exemption for pickup trucks, while increasing the tax rate on foreign currency deposit units to 20 percent.
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average of 0.2 percent of GDP beginning in 2024. Moreover, it is projected that there will be sufficient fiscal
space for the subsidies, incentives, and tax exemptions from prior actions and triggers supported by this
program.
24. Fiscal financing needs are expected to remain elevated in the short-term due to the pandemic
shock, and in the medium term as the fiscal deficit remains substantial. The financing needs are estimated
to reach 12.6 percent of GDP in 2023, driven by the elevated fiscal deficit and debt amortization, before
gradually declining in succeeding years. The higher amortizations from 2021 to 2022 partly reflect the
repayment of non-interest-bearing short-term loans from BSP, while the sharp increase in domestic
amortization in 2023 and 2024 reflects the maturity of three-year government bonds issued in 2020 and
2021. Interest payments are expected to be higher than pre-pandemic levels due to rising interest rates.
Throughout the forecast horizon, the financing profile is expected to be manageable as the government plans
to rely heavily on domestic financing sources (around 75 percent of total financing) with medium to long-
term maturities.
25. Although national government debt has increased significantly since 2020, the combination of
fiscal consolidation and the growth recovery will keep debt levels sustainable.8 The national government
debt ratio is projected to continue to increase in the short term and peak at 62.0 percent in 2024. Debt
remains sustainable as the debt-to-GDP ratio is expected to revert to a downward trajectory through 2025-
2026 due to fiscal consolidation and the growth recovery. Contingent liabilities have declined from 2.6
percent of GDP in 2020 to 1.8 percent of GDP in 2022. The amended BOT regulations do not change the
nature of contingent risks, while the expansion of PPPs under this program are not expected to lead to
greater risk to the fiscal position. The risk for the pipeline PPP is managed by contingency allocation in the
budget and the realization of sellable asset value in the event of default. Recently, combined claims (under
review) from project proponents for occurrences of MAGA due to actions by the government during the
COVID-19 pandemic was less than 0.1 percent of GDP.9 Debt composition is expected to remain stable with
low shares of short-term debt and foreign-currency-denominated debt, in line with the government debt
management strategy.
26. The debt dynamics appear resilient against different shocks. Four different scenarios were
considered including shocks on the real growth rate, interest rate, real exchange rate, and the primary
balance. Among these scenarios, the most significant shocks are those originating from deviations in the real
GDP growth rate and the primary balance. If projected growth rates are reduced by a third or the primary
deficits raised by 120 bps in the next two years, national government debt will increase to a higher path with
a debt ratio peaking around 66.0 percent or 64.5 percent, respectively, in 2025 before declining in the
medium run. A real exchange rate shock (i.e., five percent real exchange rate shock with a 0.25 pass-through
to inflation), and an interest rate shock (i.e., 300 bps interest rate increase) would have a small impact on the
debt path (Figure 1). In the worst-case scenario of combined macro-fiscal shock, the debt ratio will peak at
69.2 percent of GDP in 2025. In addition, a climate shock similar to Typhoon Haiyan10 in 2024 would entail a
shock to real GDP growth (0.5 percentage point (ppt) decrease), narrow the tax base, and increase public
8 In the debt sustainability analysis, national government debt comprises the national government’s outstanding debt from
domestic and external sources. Domestic borrowings are mainly in the form of treasury bonds and treasury bills, while external
borrowings are bilateral and multilateral loans, and commercial bonds such as U.S. dollar bonds, Eurobonds, Yen bonds, and peso-
denominated bonds.
9 Department of Finance, Department of Budget Management. 2023 Fiscal Risk Statement.
10 Paragraph 29 details the potential damages caused by climate change in more detail, including the impact of Typhoon Haiyan on
the Philippines.
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expenditures due to reconstructions and relief costs. This would increase the primary deficit by 2 percentage
points, leading to an increase in debt-to-GDP ratio to 64.3 percent, 2.3 ppt higher than the baseline.
Table 4. Key Fiscal Indicators

2020 2021 2022 2023 2024 2025 2026
Actual Estimate Projected
In percent of GDP, unless otherwise stated.
Overall Balance -7.6 -8.6 -7.3 -6.0 -5.1 -4.1 -3.9
Primary Balance -5.5 -6.4 -5.0 -3.6 -2.6 -1.3 -1.1
Total Revenues (and grants) 15.9 15.5 16.1 15.8 15.8 16.0 16.2
Tax Revenues 14.0 14.1 14.6 14.3 14.3 14.4 14.5
Taxes on net income and profits 5.8 5.5 5.3 5.4 5.4 5.7 5.8
Taxes on Domestic Goods and Services 4.3 4.4 4.3 4.5 4.6 4.6 4.7
General Sales, Turnover, or VAT 1.9 2.0 1.9 2.2 2.2 2.2 2.3
Selected Excises on Goods 1.6 1.6 1.6 1.5 1.6 1.5 1.6
Selected Taxes on Services 0.7 0.7 0.7 0.7 0.7 0.7 0.7
Other Domestic Taxes 0.1 0.1 0.1 0.1 0.1 0.1 0.1
Taxes on International Trade and Transactions 3.0 3.3 3.9 3.4 3.4 3.3 3.2
Other Taxes 0.8 1.0 1.1 1.0 0.9 0.8 0.8
Non-tax revenue 2.0 1.4 1.5 1.5 1.6 1.6 1.6
Total Expenditures 23.5 24.1 23.4 21.8 21.0 20.1 20.1

Current operating expenditures 18.5 18.0 17.4 16.8 16.0 15.1 15.0
Personnel Services 6.6 6.6 6.3 6.0 5.7 5.4 5.3
Maintenance and other operating expenditures 4.9 4.5 4.0 3.7 3.4 2.8 2.7
Subsidy 1.3 1.0 0.9 0.8 0.6 0.5 0.5
Allotment to Local Government Units 3.5 3.5 3.8 3.8 3.6 3.5 3.5
Interest Payments 2.1 2.2 2.3 2.4 2.6 2.8 2.9
Tax Expenditures 0.2 0.2 0.2 0.2 0.1 0.1 0.0
Capital Outlays 4.9 6.0 5.9 5.0 5.0 5.1 5.1
Infrastructure & other capital outlay 3.8 4.6 4.6 4.0 4.0 4.2 4.2
Equity 0.1 0.2 0.1 0.2 0.2 0.0 0.0
Capital transfer to local government units 1.0 1.1 1.2 0.8 0.8 0.9 0.9
Net Lending 0.1 0.1 0.1 0.0 0.0 0.0 0.0
National Government Financing (gross) 15.3 13.3 9.8 12.6 12.5 10.7 10.1
External (gross) 4.1 2.9 2.4 3.0 2.8 2.4 1.9
Domestic (gross) 11.1 10.4 7.5 9.6 9.7 8.3 8.2
National Government Debt 54.6 60.4 60.9 61.3 62.0 61.5 61.0
Sources: Bureau of the Treasury, Department of Budget and Management, Philippine Statistics Authority, and World Bank
projections.
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Figure 1. National Government Debt-to-GDP Projections under Alternative Scenarios
Source: World Bank staff calculations.
Table 5. External Debt Composition (September 2022)
US$ million Share of Total Debt Percent of GDP

Total External Debt 107,910 22.9 29.9
Monetary Authorities 3,679 0.8 1.0
General Government 56,801 12.1 15.8
Banks 19,071 4.0 5.3
Other Sectors 28,358 6.0 7.9
Of which intercompany lending 3,789 0.8 1.1
Long term 91,532 19.4 25.4

Short term 16,378 3.5 4.5
Source: BSP, PSA.
27. The growth outlook faces significant downside risks. On the domestic front, food security may be
challenged given the weak agriculture sector and tighter domestic and global food commodity supplies.
Future energy and food shocks brought about by protracted geopolitical conflicts and extreme weather
events remain key downside risks in the foreseeable future. This could lead to persistently high inflation,
which would erode purchasing power, and threaten to deepen poverty and worsen economic vulnerability.
It could also lead to pressure on the government to offer additional subsidies, amid relatively tight fiscal
space, although the government has avoided this so far by offering increased social protection and targeted
cash transfers. With the Philippines among the world’s most disaster-prone countries, climate-related
disasters risk lives and livelihoods and impose additional fiscal costs on the government.
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28. On balance, risks on the external front remain tilted to the downside, although the emergence of
several upside risks could soften the global growth slowdown. While baseline forecasts already suggest a
moderation in global economic activity, the possibility of additional shocks amid synchronous monetary
policy tightening by major central banks and fiscal policy tightening globally could trigger a sharper downturn
in growth. The added financial stress could compound the rising fiscal and financial vulnerabilities. Moreover,
these adverse developments can weaken business and consumer confidence and temper private sector
investment and consumption, key drivers of growth. Under a sharper-than-expected global slowdown,
external demand will continue to weaken and reverberate into weakness in manufacturing activities. On the
domestic front, the threat of a prolonged episode of persistently high inflation and an acceleration in
monetary policy tightening may moderate domestic demand, manifesting in weaker household consumption
and capital investment growth. On the domestic front, the threat of persistently high inflation remains as the
most significant downside risk to the growth outlook. Higher-than-expected inflation will likely dampen
private consumption growth further, and lead to even more aggressive monetary policy tightening, which
could weigh on private investment growth. However, the emergence of several upside risks could soften the
global growth slowdown and provide an additional mitigating factor to recession risk. A faster-than-expected
recovery from China and increased resilience in advanced economies could provide substantial positive
spillovers to global activity, while faster disinflation amid a moderation in commodity prices could lead to
less monetary tightening.
29. Climate shocks, in the form of extreme weather events or slow-onset trends will continue to weigh
on the country’s immediate recovery and long-term inclusive growth prospects. These climate shocks
disrupt economic activities, damage infrastructure, and induce deep social disruptions. On average, annual
losses from typhoons are currently estimated at 1.2 percent of GDP and as much as 4.6 percent of GDP in
extreme cases like Super Typhoon Yolanda (Haiyan) in 2013. By 2030, The average estimated loss of GDP is
at least 3.2 percent, rising to at least 5.7 percent by 2040. However, the impacts could be much worse,
reaching 7.6 percent of GDP by 2030 and 13.6 percent by 2040.11 As a result, the cost of inaction could
severely undermine the Philippines’ collective long-term vision to be free from poverty by 2040 and remains
a constant downside risk to the country’s outlook. Measures to adapt to climate change could help safeguard
the country’s inclusive growth prospects, potentially reducing economic losses by two-thirds. However,
policies to address climate shocks can negatively impact growth, narrow fiscal space, crowd out investment,
and impact productivity. For example, though adaptation measures could boost growth in both the short and
long-term through increased investments in infrastructure, these measures are costly and could crowd out
other investments such as in health and education. Meanwhile, mitigation measures that reduce air pollution
would strengthen human capital through lower morbidity and mortality but may also increase production
costs incurred by the private sector.
30. The macroeconomic policy framework is adequate for the proposed operation. The growth outlook
is positive, anchored on domestic demand, a recovering services sector, and a public infrastructure
investment agenda that will gain steam over the forecast horizon. The BSP has responded to rising inflation
with monetary tightening, consistent with its inflation-targeting objective and responsive to global interest
rate movements. Under its helm, the country has accumulated adequate foreign reserves that provide a
cushion against the impact of global shocks. It is expected to maintain a market-determined exchange rate
regime as the first line of defense against external shocks. On fiscal policy, the authorities have publicly laid
out its medium-term expenditure plan, reflecting a steadily declining fiscal deficit, through a declining share
of expenditures to GDP until 2026 and is expected to gradually raise revenues through tax reforms. Finally,
11 Please refer to the Debt Sustainability Analysis to see the potential impact on the fiscal space and national government debt.
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the government’s commitment to accelerate the pace of structural reforms as part of the recovery will
further promote competitiveness and support growth. National government debt is sustainable owing to the
expected growth recovery and fiscal consolidation. However, inaction on the climate adaptation agenda
threatens the country’s post-pandemic recovery and long-term inclusive growth prospects.
3. GOVERNMENT PROGRAM
31. The GOP is committed to achieving the medium-term development objectives outlined in the PDP
2023-28. The PDP’s strategic framework is guided by AmBisyon Natin 2040, the long-term development
aspirations of the country towards a strongly rooted, comfortable, and secure life for all.12 It is organized
according to three objectives a) develop and protect capabilities of individuals and families; b) transform
production sectors to generate more quality jobs and produce competitive products; and c) foster an
enabling environment encompassing institutions, the physical and natural environment. It also reflects the
GOP’s policies, strategies, and legislative priorities in line with the 8-Point Socioeconomic Agenda to address
structural constraints to generating more jobs, quality jobs, and green jobs over the medium term.
32. The PDP aims to make trade and investment strong drivers of growth. Underlying these priorities
is a commitment to promote investment, including FDI, and to facilitate stronger partnerships with the
private sector, including by strengthening and facilitating PPPs to upgrade infrastructure and to maintain
infrastructure investment at 5 to 6 percent of GDP. Policies enabling open and competitive markets are
expected to complement these reforms, and businesses are expected to benefit from lower transaction
costs, a healthy regulatory environment, and protection from anti-competitive practices.
33. The GOP has also made commitments through the PDP to promote RE sources, strengthen green
public procurement and enhance waste and plastics management. Under the PDP, the GOP is committed
to liberalize foreign ownership of renewable generation to stimulate investment towards efficient energy
transition and achieve 50 percent share of RE in power generation by 2040. Concurrently, the
implementation of green public procurement (GPP) will also be strengthened under the PDP as part of the
broader initiative to guide consumer behavior towards sustainable products and services. To reduce air
pollution from the transport sector, the GOP has institutionalized the promotion of EVs through passing the
Electric Vehicle Industry Development Act (EVIDA) and made commitment in the PDP to implement the
Comprehensive Roadmap for Electric Vehicle Industry (CREVI). The legislative reforms on solid waste and
plastics management have also gained momentum by phasing out single use plastics (SUP) and introducing
plastic bags excise tax and Extended Producer Responsibility (EPR).
34. To accelerate climate mitigation and adaptation efforts, the GOP has developed a comprehensive
set of policies and strategies in the PDP to facilitate low carbon economy transition and strengthen
ecosystem and disaster risk resilience. To enable low carbon economy transition, the GOP committed to
implement the Nationally Determined Contribution (NDC) policies and measures, strengthen the private
sector investments in green development, expand market opportunities for related technologies, and
facilitate just transition of the workforce in a greener economy. The GOP will fast-track the development and
implementation of the Green Jobs Assessment and Certification Guidelines to operationalize the Green Jobs
Act and incentivize businesses to invest in green products and services. The GOP will also intensify ecosystem
protection, rehabilitation, and management, as well as promote and expand natural resource-based
12 “matatag, maginhawa, at panatag na buhay sa lahat”.
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industries and enterprises to enhance ecosystem resilience. To enhance climate and disaster risk resilience,
the GOP will boost multistakeholder partnership and strengthen the capacity of LGUs and communities in
disaster prevention and preparedness, increase public awareness of risk and vulnerability, and strengthen
the implementation of the National Climate Risk Management Framework.
4. PROPOSED OPERATION
4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION
35. The proposed DPL series aims to support the reforms of the GOP to: 1) accelerate the economic
recovery and boost long-term growth; and 2) protect the environment and improve climate resilience. The
proposed operation is the first in a programmatic series of two operations. It is structured around the
following two pillars corresponding to the development objectives and pillars:
• Pillar 1. Accelerate the economic recovery and boost long-term growth by supporting reforms to increase
investment in public service sectors (e.g., domestic shipping, air and land transport, and
telecommunications); attract private investment in public infrastructure, increase share of RE in the
energy mix, and create more green jobs and direct more investment to green activities and services.
• Pillar 2. Protect the environment and improve climate resilience through reforms to enhance plastic
waste reduction, recovery, and recycling, promote green transport, encourage more production and
consumption of green goods and services through public procurement, and protect the budget and
farmers from climate-related contingent liabilities.
36. The reforms supported by the proposed DPL series are well aligned with the PDP 2023–2028. The
reforms under the DPL series will contribute to the priorities under the PDP relating to (i) promoting trade
and investment; (ii) promoting competition and improving regulatory efficiency; (iii) expanding and
upgrading critical infrastructures; (iv) expanding employment opportunities, and (v) accelerating climate
adaptation and strengthening disaster resilience.
37. The Philippines is highly exposed to natural disasters and climate change. Average temperatures in
the country have already increased by 0.68°C from 1951–2015. Projections made by the Intergovernmental
Panel on Climate Change’s (IPCC) multi-model ensemble indicate that (a) temperatures in the Philippines will
continue to increase by about 1-2°C by the end of the 21st century, depending on the climate scenario; (b)
while average rainfall may not change much, variability and intensity are likely to increase; (c) extreme events
will become stronger and more frequent. The northern and central parts of the country are projected to
become wetter, and the southern part drier throughout the year. Without action, climate change will impose
substantial economic and human costs, affecting the poorest households the most. The agriculture sector is
highly sensitive to climate and geophysical hazards, and warming temperatures, extreme weather events,
etc. are expected to worsen significantly by mid-century. Institutional efforts are being made to introduce
and scale climate resilient agricultural practices that should help mitigate overall risks. Nonetheless, risks will
be moderate given the difficulty to fully adapt to an increasingly unstable climate.13
38. Reforms supported by the proposed DPL series are expected to strengthen resilience to natural
13 World Bank, Climate and Disaster Risk Screening Report for this DPL, 2023.
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disasters and climate change and reduce emissions. Estimates from the CCDR suggest that investment in
new infrastructure and agriculture measures to boost climate resilience could cost about 0.7 percent of GDP
but is far outweighed by the potential economic damages from climate change in the country, which could
reach up to 7.6 percent of GDP by 2030 and 13.6 percent of GDP by 2040 if no mitigation response is
undertaken. Accelerated decarbonization (Prior Actions 3 and 4) would also reduce electricity costs over the
longer term, enhancing competitiveness, while generating local co-benefits, such as reduced air pollution.
Better plastic waste management (Prior Action 5) will contribute to climate change mitigation and adaptation
co-benefits to the Philippines by lessening marine pollution and flood risks in drainage infrastructure. The
energy transition will be complemented with energy efficiency measures—notably in transport, which is the
biggest fossil fuel-consuming sector and the largest source of urban air pollution (Prior Action 6). Scaling up
green public procurement will support a transition to greener production (Prior Action 7). The agriculture
crop insurance reform is expected to protect the budget and farmers from climate-related risks (Prior Action
8).
39. Reforms will also support narrowing the gender gap in the labor market. The Philippines has
attained a high standard of gender equality by regional and global standards, but significant gender gaps
remain in the labor market. The World Economic Forum Gender Gap Index 2022 ranks it 19th out of 146
countries, supported by the Philippine Magna Carta for Women, a landmark law signed nearly 14 years ago
seeking to eliminate discrimination against women. Nonetheless, significant weakness lies in the labor
market mainly on female labor force participation (one of the lowest in the East Asia and the Pacific region),
comparatively lower women earnings for every level of education, and the relatively higher risk for females
from conflict and disasters. Labor Force Surveys (October and December 2022, and January 2023) data
indicate that about half of working-age women participate in the labor market compared to three-quarters
of men. Further, the ratio of employment to working-age population is nearly 60 percent, but only 45 percent
for women, compared to 70 percent for men. Women are confined to lower skill and less productive work
and are relatively more represented in vulnerable forms of employment,14 including in the plastic sector.
These issues are obstacles for inclusive growth and competitiveness and reduce economic opportunities for
women. Skills deficits, household responsibilities, social norms and the gender wage up are the main sources
of gender gaps in access to economic opportunities.15 Prior Action 5 will promote gender equality in the
plastic sector.
40. This operation features core Maximizing Finance for Development (MFD)-enabling reforms under
Pillar 1, coalescing on the strategic role of private investment for accelerating recovery and boosting long-
term growth. The government declared a legislative priority over reforms that engage private sector and
promote PPPs. Removing binding constraints to catalyze private investment for transport, logistics, telecom,
and RE carry substantive potential. According to the Organization for Economic Cooperation and
Development (OECD), the market size of the logistics transport sector was approximately US$ 11 billion in
2019, with road and maritime transport accounting for 40 and 35 percent, respectively, of freight transport
sector revenue. Furthermore, estimates from the Department of Trade and Industry (DTI) suggest that the
MFD-enabling potential behind the amendment of the Public Service Act to open Public Service Sectors to
100 percent foreign ownership (Prior Action 1) could be significant across telecommunications,
transportation, logistics and railway sectors following the implementation of this reform. The MFD-enabling
potential in public infrastructure could grow further following the amendments to the Build-Operate-
Transfer Law IRRs and the updated Investment Coordination Committee (ICC) Guidelines and Procedures on
14 World Bank, Overcoming Barriers to women’s work in the Philippines, 2022.

15 Ibid.
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PPP Proposals providing greater certainty in the PPP framework (Prior Action 2). New PPP investments are
expected to be processed under this new regime, representing over US$ 1 billion. MFD is also expected to
increase investments by US$ 0.2 billion annually between 2023 and 2026 in the RE sector following the
removal of regulatory constraints to private investment on exploration, development, utilization, and
commercialization of natural resources (Prior Action 3).
41. The proposed DPL series benefits from successful engagements with stakeholders and
implementing agencies during previous DPL operations. The DPL series builds on lessons in successful
collaboration: the Bank and the GOP used policy dialogue to identify a reform pipeline early on, and to design
technical assistance and capacity building program to advance and support the program. These engagements
strengthened the timeliness and quality of reforms, resulting in a robust pipeline of game-changing legal,
institutional, and regulatory reforms. Moreover, as implementation is often seen as one of the key binding
constraints in the Philippines, the Bank and the GOP have learned that focusing the DPL program on the
actions that assist in the implementation of reforms is essential to increase impact additionality and
effectiveness of the reforms in the country.
4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS
Pillar 1. Accelerate the economic recovery and boost long-term growth
42. Reforms supported under this pillar seek to unlock the potential of infrastructure, RE, and green
jobs by facilitating private investments. Reforms under this pillar will improve performance of public service
sectors by encouraging private operators to invest in infrastructure. Investment is expected to not only bring
capital but also technological expertise to the Philippines. The reforms will accelerate the transition from
fossil fuel to RE by removing restrictions to trade and investment and by creating demand for RE generation.
DPL 1 supports complementary measures that increase demand for, and supply of, RE markets. DPL 2 will
progressively build conditions for investment along its development cycle. For example, reforms in this pillar
will extend the impact of national programs to specific sectors such as transport, shipping, and to local
governments. In addition, to follow the liberalization of investment restrictions in RE markets, the second
operation will propose to simplify the permitting and licensing for investment in renewables.
Increase investment in public service sectors
Prior Action 1. To increase investment in Indicative Trigger 1. To increase investment in

infrastructure services, the Borrower has created infrastructure services, the Borrower, through the
the legal framework to open Public Service NEDA and sector regulators, has approved the
Sectors16 to 100 percent foreign ownership through implementing regulations to open Public Service
the amendment of the Public Service Act Sectors to 100 percent foreign ownership through
(Commonwealth Act No. 146), as evidenced the adoption of the General IRRs and sector IRRs.
through the enactment of the Republic Act (RA) No.
11659 on March 21, 2022.
16
“Public Service Sectors” means those sectors of the economy offering certain public services, for general business purposes, and
which are identified in the Public Service Act (CA 146, as amended), Section 13(b).
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43. Public service sectors in the Philippines suffer from high costs, which reduces productivity of
economic sectors that rely on backbone service inputs. Firms operating in the Philippines experience costly,
lower quality of transport, rails, ports, airports roads and warehousing than firms operating in the region.
Evidence of market power is strong in transport, with an average price cost margin of 40 percent, much
higher than peers. The cost of logistics remains high at approximately 27 percent of revenue, compared to
its ASEAN peers.17 Moreover, the Philippines ranked 60th out of 160 countries in the 2018 Logistics
Performance Index, much lower than regional peers.18 Between 2010 to 2019, the Philippines received the
lowest share of FDI inflows in the transportation, information and communication, and trade sectors, among
ASEAN peers. When functioning well, transport and logistics services, which also extend to the realm of
telecom and digital infrastructure, enhance the performance of other sectors through better
interconnection. An efficient transportation and telecommunication sector will contribute to improved trade
performance and economic development by lowering transaction costs and creating more customer value.
44. Foreign equity restriction on public services, codified into law in Public Service Act of 1936,
thwarted competition in public service sectors, including telecom and transport. Investment liberalization
reforms in backbone services have been held up for years. Foreign equity restrictions have been enshrined
directly in the Constitution. The Philippines relies on maritime transport to move goods in both domestic and
foreign markets while road transport is mainly used to move goods to and from ports and within each island.
However, these sectors remain highly protected and show significant restrictions to market entry, especially
for international competitors. Most restrictions to FDI in the Philippines relate to equity restrictions
stemming from the foreign ownership limitation of 40 percent across multiple sectors. Foreign investment
in transport operations and services is limited and domestic transport service providers dominate the
industry. As a result, these key public services, have remained very concentrated, with few operators serving
the domestic market. Without competitive pressure, they have little incentive to invest to reduce prices and
improve the quality of services.
45. Pressing needs for economic recovery paved the way to amendment to the Public Service Act (PSA)
and revert uncompetitive dynamics prevalent in the transport and telecommunication sectors. The COVID-
19 crisis brought an opportunity to introduce a strong reform drive, resulting in the PSA amendment.19 The
amendment to the Public Service Act (PSA)20 sets the foundational legal framework to open previously
restricted sectors of the economy by allowing competition and FDI in infrastructure and services. Opening
these sectors to foreign competition will improve the quality of services. It does so by creating a separate
classification of public services for public utilities and critical infrastructure; without going through a
Constitutional amendment. The amended PSA regulates market access for private investors, allowing up to
100 percent foreign ownership of domestic shipping, air transport, land transport, express parcel and
delivery, telecommunication, water supply, and toll roads. The opening of infrastructure to foreign
competition, will facilitate movement of people, goods, services, knowledge, and help firms integrate in
domestic and global markets, boosting competitiveness, improving connectivity, and reducing the
operational costs of firms.
46. This DPL series supports the PSA reform through Prior Action 1 and Indicative Trigger 1 for the
second DPL. These reform actions, i.e., the issuance of the general PSA IRR (the first layer of investment
17 Indonesia (21 percent), Vietnam (16 percent) and Thailand (11 percent).
18 Vietnam (39th), Thailand (32nd) and Indonesia (46th).
19 The “Corporate Recovery and Tax Incentives for Enterprises” CREATE Act, amended Foreign Investment Act (FIA), and the Retail
Trade Liberalization Act (RTLA)

20 Republic Act No. 11659, signed into law on 21 March 2022,
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standards), and sector-specific regulatory frameworks (the second layer of requirements) complete the PSA
amendment reform. The general IRR will provide the basis for the National Economic and Development
Authority (NEDA)’s oversight in the implementation of the PSA amendment at the sectoral level through its
principles of transparency, non-discrimination, and regulatory simplicity in the application of the law. The
general IRR will reduce investor uncertainty about definitions of national security, critical infrastructure, and
principles of investment reciprocity across nations. However, a robust regulatory regime that promotes
competition in public service sectors is a necessary condition for foreign equity liberalization to take its full
effect in terms of service costs and quality. The sector IRRs will play a key role in promoting a level playing
field for new entrants in telecom, logistics and transport sectors. These sectors impose high barriers to entry,
including substantive capital requirements at the outset, and significant network effects. To this end, the
sector IRR will specify investment requirements for service standards, including operational licenses, permits,
and systems for verifying and inspecting service quality and performance.
47. Expected results: The successful implementation of the IRR for the PSA amendment and the sector
IRRs is expected to increase the annual average foreign investment in Public Service Sectors from US$ 2.1
billion (PHP 109 billion or 0.55 percent of GDP) (2017-2022 average) to US$ 3.9 billion (PHP 203 billion or
0.76 percent of GDP) (2023-2025 average) (Result Indicator 1).
Attract private investment in public infrastructure
Prior Action 2. To attract private investment in public Indicative Trigger 2. To increase access to resources
infrastructure and increase certainty in the PPP for transparent and better prepared PPPs at the
framework the Borrower has: (a) amended the Build- local levels, the Borrower, through the Philippines
Operate-Transfer Law IRRs; and (b) approved the PPP Governing Board, has established a window,
Guidelines and Procedures on Processing PPP with supporting resources, business plan and
Proposals for NEDA Board/ Investment Coordination guidelines, within the Project Development and
Committee (ICC) Evaluation and Approval, as Monitoring Facility (PDMF) for local PPPs through a
evidenced by the Certification of NEDA Board resolution.
Approval of such Guidelines and Procedures on
November 24, 2022.
48. Public-Private Partnerships are a key legislative priority for expanding infrastructure under the
PDP, but the operating environment has not been conducive to PPPs over the past years. The PDP has
codified the importance of PPP for improving infrastructure and attracting foreign investment in its strategy
framework. The administration seeks to sustain spending in transport connectivity and public mass transport
systems, downstream natural gas, RE and energy efficiency. To maintain infrastructure investment at 5
percent of GDP while halving the fiscal deficit by 2025, the Government needs to build market confidence
and attract private participation in infrastructure (PPI). However, the environment for PPPs has deteriorated
for years. Recent trends show a decline in the number of PPPs registered, when compared to the levels
attained between 2010 and 2016.21 Recently, the imbalance between risks and rewards in PPPs has resulted
in renegotiation and cancellation of PPPs in procurement, causing strain between the government and
21Although 2022 data show an uptick compared to the recent past, with several projects reaching financial closure, mostly in
transport.
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private investors.
49. Revisions to the IRR (April 2022 revisions) of the Build-Operate-Transfer (BOT) Law tried to correct
imbalances in PPP contracts, but they have also rendered PPPs unattractive to market participants.
According to the World Bank’s Benchmarking Infrastructure Development database, which reviews the
quality of PPP as well as traditional public infrastructure procurement frameworks, the Philippines’ PPP
procurement framework ranks the highest across the region in 3 of the 4 broad areas benchmarked, including
PPP preparation which covers fiscal treatment of PPPs. Compared to peers, the country framework ranks
average in the management of unsolicited proposals, which is being addressed by a revision to the legal
framework for PPPs (see below). However, in April 2022, the government introduced new requirements for
PPP approval, seeking to rectify terms that were deemed disadvantageous to the government and the public.
The new requirements sought to prevent the abuse of directly negotiated PPPs and close off loopholes such
as those found in joint venture schemes. These measures delimited the application of Material Adverse
Government Action (MAGA) only to acts of the executive; exempted regulatory acts from being subject of
arbitration; added steps in the approval process that were unclear and duplicative; and, required approval
of the financing agreement for the project by the government. In sum, these provisions raised significant
challenges to project bankability given they were inconsistent with legal precedent and international norms
on PPPs.
50. The revision to the IRR (November 2022 revisions) (Prior Action 2) and a new set of guidelines for
the evaluation and approval of PPP Proposals will clarify the approval procedures, requirements, and
decision-making policy and shorten the processing timeline for PPP evaluation. The revised IRR will improve
the April 2022 IRR and align the PPP regulation to international standards, promoting a predictable
environment for investors and lenders, and improving the appetite for PPP project financing. Furthermore,
the new guidelines will set out the requirements and decision-making policies of PPP approvals in detail,
translating the revised IRR into ICC and NEDA Board procedures. The ICC Guidelines mandate service
standards for each approval step, where there was none before, and so, improving certainty in the processing
time for PPPs, which under the previous administration averaged nearly 30 months. The IRRs and guidelines
confirm the commitment of the government to consider consumer welfare as a key consideration in the
review process and approval of PPP projects. There are several PPP projects pending review at the time of
the updated ICC Guidelines that are now expected to be processed under this new regime, which collectively
represent over US$1 billion in investments.
51. Together, the reversal of the April 2022 IRR and the promulgation of the NEDA Board/ICC
Guidelines improves market orientation and eliminates ambiguity from the previous framework.
Redressing the restrictions and uncertainty created by the previous IRR and process will increase the
likelihood of successfully executing the government’s PPP pipeline, which includes several sectors
representing billions of dollars in (economic and social) infrastructure investments, some of which directly
reduce GHG emissions, such as mass transportation.
52. DPL 2 will complement the revised IRR and new guidelines by allowing local government units to
access assistance for enhanced preparation of PPP evaluation. A resolution from the Philippines PPP
Governing Board (PPPGB) will establish a Project Development and Monitoring Facility (PDMF) for local PPPs.
This facility will support access for local governments to technical, legal, and financial advisory resources to
better prepare PPP projects, while introducing standardization and innovation so that PPPs can be procured
within prompt timelines more suitable to local dynamics. This resolution supports implementation of the
revised 2022 IRR by empowering local governments to design and execute the PPP projects. It will also allow
contracting authorities such as electricity cooperatives to use transparent and competitive approaches to
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mobilize private investment in local infrastructure.

53. Further reforms to strengthen the PPP framework are in the pipeline. The administration also
announced the updating of the framework for PPPs (the BOT Law), as a priority legislative agenda. Some
necessary revisions to the PPP framework cannot be fixed through regulations and must be enacted through
law. A new PPP law is expected to provide a unified framework for PPPs and joint ventures between
government and the private sector; introduce clearer mechanisms for managing fiscal and contingent liability
risks within PPPs; strengthen the policies on unsolicited proposals to promote competition; and update
approval thresholds to bring them to current conditions. Going forward, it is important to balance incentives
to attract private sector investment with the interests of consumers.
54. Expected result. The reform is expected to reduce the period needed to reach final decision on PPPs
by the ICC from receipt of a complete and compliant project proposal from an average of 29.9 months in
2022 to 12 months by 2025 (Result Indicator 2).
Increase share of renewable energy (RE) in power generation
Prior Action 3. To increase foreign direct investment Indicative Trigger 3. To increase foreign direct
in solar and wind energy, the Borrower, through the investment in solar and wind energy, the Borrower
DOE, has amended Rules and Regulations has streamlined permitting processes for
Implementing the Renewable Energy Act to remove renewable energy investment through a regulation.
the 40 percent foreign equity cap on exploration,
development, utilization and commercialization of
natural resources, as evidenced by the DOE
Department Circular DC 2022-11-0034.
55. The share of fossil fuels in power generation has increased, driving the growth of the carbon
footprint in the Philippines over the past decade. The share of coal-fired power generation increased from
34 percent to 55 percent between 2010 and 2019, while the share of RE fell from 26 to 21 percent over the
same period. This trend highlights the fast-growing carbon footprint of energy consumption and heightens
energy security concerns, with imports accounting for 80 percent of the coal consumption for power
generation in 2021. Furthermore, the Government estimates that electricity demand will increase at the rate
of about 6.6 percent per year, driven by factors including population growth rising standards of living and
growth in manufacturing, with the overall electricity demand to triple by 2040.
56. The Philippines possesses substantial potential for RE generation, but investment in solar and wind
energy generation has stalled. Investment in RE has become commercially viable compared to coal-
generated electricity generation, as the unit costs of electricity generation from solar photovoltaic (PV) and
on-shore wind have declined rapidly over the last decade. Yet, as of 2020, the total installed generation
capacity from solar and onshore wind energy stood at 1.5 gigawatt (GW), a fraction of the 250 GW technical
potential of wind (onshore and offshore) and 80 GW of solar.22 Critical constraints often mentioned by key
stakeholders, including the private energy producers, are: the 40 percent foreign equity cap on RE
investment, lack of off-takers to commence commercial operation, the complicated and lengthy permitting
processes, grid-related issues, and the relatively small and cautious feed-in-tariff (FIT) program. Delays in the
22 Achieving this solar energy potential would require about 0.5 percent of the country’s land area.
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processing and approval of energy projects have been noted as a key detriment by RE project developers and
investors. Processing and approval of energy projects takes an average of 1,876 calendar days with 359
signatories from 74 agencies required (PDP).
57. The Government set an ambitious target of 50 percent of RE in total power generation by 2040 and
has started to pursue reforms to implement it. In the National Renewable Energy Program (NREP) 2020-
2040, the Government set a target to increase the share of RE from 21 percent of total generation in 2020 to
50 percent by 2040. The increased focus on RE is pursued in parallel to slowing the expansion of coal-fired
power generation capacity from 2026 onwards, as stated in the Philippine Energy Plan (PEP) 2020-2040. A
clean energy transition will require solar energy to become the dominant source of electricity generation,
with a substantial growth in onshore and offshore wind energy. Achieving these targets will require a
significant increase in capital investment in solar and wind technologies, requiring a strong policy framework
and subsequent regulations that improve an enabling environment for investment in RE. In the PDP, the
Government recognizes its role to provide market incentives that can enable a transition to cleaner energy.
Specifically, the Government stated its plan to pursue liberalization of foreign ownership of RE generation,
deepen a market demand for RE by increasing a quota for electricity distribution and supply utilities to
purchase RE, and streamlining the permitting processes for new power generation, transmission, or
distribution projects. The Government is also exploring the introduction of carbon pricing instruments as a
cost-effective measure to encourage the transition to clean energy and raise state revenues. To address the
delays in processing and approval of energy projects, the Government also established the Energy Virtual
One-Stop Shop (EVOSS) in 2021, an online system aimed at streamlining the permitting processes of power
generation, transmission, and distribution projects.23
58. Achieving the 50 percent RE target by 2040 requires a substantial increase in foreign direct
investment (FDI) in RE. Increasing FDI will be critical to not only bridge the financing gap but also to facilitate
the transfer of technology and management know-how in construction, operation, and maintenance
involved in RE infrastructure. This is particularly the case for floating solar and offshore wind. These
technologies are still expensive compared to ground-mounted solar PV and onshore wind. However, prior to
this reform, the IRR of the Renewable Energy Act (REA) of 2008 stipulated that RE projects were reserved to
Filipino citizens, corporations, or associations representing at least 60 percent of total capital, resulting in a
40 percent limitation on foreign equity. A review of investment conditions in Indonesia, Vietnam, Malaysia,
and Thailand reveals that the reform introduced in the Philippines is consistent with the regional practice.
Equity restrictions for RE projects are rare, and solar and wind energy projects show no caps for foreign
ownership. These countries typically impose only licensing requirements and sometimes require the
presence of joint ventures between local and international investors, which promotes transfer of know-how
for investments in RE.
59. Removing the 40 percent foreign equity cap imposed on businesses engaged in the RE investment
removes a critical binding constraint to attract more FDI into the RE projects (Prior Action 3). This reform
was implemented through an amendment of the IRR of the REA and will benefit especially the development
of floating solar and offshore wind energy projects. Timing to facilitate entry of foreign investors is of essence,
as several Association of Southeast Asian Nations (ASEAN) countries are jockeying to attract the necessary
expertise, know-how and capital investment, considering FDI liberalization under the Regional
Comprehensive Economic Partnership (RCEP).
60. Indicative Trigger 3 for the second DPL will streamline permitting processes for RE, another key
23 Following an enactment of Republic Act No. 11234 otherwise known as the “Energy Virtual One-Stop Shop (EVOSS) Act” of 2019.
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constraint to increasing FDI on solar and wind energy. The Government established the Energy Virtual One-
Stop Shop (EVOSS) in 2021 to streamline permitting processes involving 17 government agencies for new
energy infrastructure projects. Full implementation of the EVOSS will entail issuance of additional regulations
that revise existing procedures within various government agencies and/or establish new permitting
processes for nascent RE technologies such as offshore wind and floating solar. There is also an ongoing effort
led by the Anti-Red Tape Authority (ARTA) to streamline permitting processes and requirements in the LGUs
for energy infrastructure investments, including generation, transmission, and distribution of RE. These
measures are logical sequels to lifting restrictions on FDI, lowering another significant constraint to
accelerating investment in RE.
61. Expected Results. This reform is expected to increase annual average investment (as measured by
the development cost of investment) in solar projects from US$ 95 million (or 0.02 percent of GDP) (2017-
2022 average) to US$ 284 million (or 0.06 percent of GDP) (2023-2025 average) (Result Indicator 3). While
the reform is also expected to increase investment in offshore wind electricity generation, the lead time from
approval to investment is longer than the time horizon of the result framework, so these were not included
in the result indicator.
Prior Action 4. To increase demand for renewable energy, the Borrower, through the DOE, has increased
the minimum annual incremental generation required to be sourced from renewable energy resources
from 1% to 2.52% starting 2023 for Mandated Participants, 24 as evidenced by the DOE Department
Circular DC2022-09-0030.
62. To achieve the RE target, the Government increased the mandatory annual increment for RE’s
share in power generation (Prior Action 4). Stimulating demand remains a necessary step to scaling up RE
deployment and meet the government’s ambition. To ensure achievement of national RE target of 50 percent
by 2040 stated in the National Renewable Energy Program 2020-2040, the mandatory RE market share in the
Renewable Portfolio Standard was increased from a minimum annual increment of 1 percent to 2.52 percent
by 2023 and onwards. Under the previous minimum annual increment regime, the RE share was projected
to remain roughly constant at around 21 percent. This mandate applies to electricity distribution and supply
companies.
63. Moreover, the DOE also introduced the Green Energy Auction Program (GEAP). It successfully
auctioned about 1.6 GW of solar and onshore wind in June 2022 at significantly lower prices than the
prevailing FIT, a major step forward in moving to competitive bidding for large scale grid-connected solar and
wind power.
64. Expected result. The reform is expected to increase the share of electricity generation from RE, as
monitored by the Department of Energy, from 22 percent in 2021 to 28 percent in 2025 (Result Indicator 4).
24“Mandated Participants” means electric power industry participants which are mandated to comply with the RPS annual
requirement which includes entities enumerated in Rule 3, Section 11 of this RPS On-Grid Rules.
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Create more green jobs and direct more investment to green activities and services
Indicative Trigger 4. To support green jobs creation, Indicative Trigger 5. To mobilize sustainable
the Borrower, through the Climate Change finance, the Borrower, through the Financial Sector
Commission (CCC), has launched an assessment and Forum, has issued the Sustainable Finance
certification system for green jobs under the Green Taxonomy Framework based on international
Jobs Act of 2016 by issuing Green Jobs Guidelines principles, as evidenced through a BSP Circular, a
under a Joint Memorandum Circular (JMC). SEC Memorandum Circular, and an IC Circular.
65. Indicative Trigger 4 will support the creation of green jobs by implementing the regulatory
framework of the Green Jobs Act. The quality of the transition to a low carbon economy depends on how
the workforce adapts to the new reality, particularly among vulnerable groups. To implement the Green Jobs
Act and make fiscal incentives respond to a just transition, which is inclusive of SMEs, the government is
enacting the Green Jobs Assessment and Certification System and Guidelines. These guidelines will define
the standards for green products, services, and jobs, and outline the process for companies to obtain the tax
incentives for generating and sustaining green jobs, which includes both new jobs and existing jobs that
comply with the green jobs certification. They will also ensure interoperability between the sustainable
finance taxonomy and incentives and improve efficiency in the use of fiscal incentives.
66. Indicative Trigger 5 will support the introduction of a sustainable finance taxonomy for the
financial sector. The development of green financial markets can play a central role in facilitating investments
in the short run and a transition toward more sustainable economies in the long run. However, in the
Philippines, sustainable financial markets remain relatively under-developed: only US$2.8 billion (about 0.8
percent of GDP) was raised through green corporate bonds and syndicated loans between 2018 and 2021. In
addition, a marked gap in climate-related information hampers investments in sustainability in the
Philippines. About 70 percent of surveyed banking institutions in the Philippines cited the limited availability
and complexity of climate-related information as core challenges for sustainable investing. This challenge
stems from the absence of clear, consistent, and globally accepted definitions, and consequently, of
reporting, disclosures, and data analytics, as well as from lack of internal resources for capacity building, both
of which contribute to increased uncertainty and heightened greenwashing risks. Hence, an important next
step is to push forward with an effective implementation of taxonomies and disclosure standards to improve
overall market transparency and enhance trust in sustainable financial markets. The sustainable finance
taxonomy will clarify what constitutes green investments, a critical step to unlock financing. The taxonomy
will facilitate investment screening criteria, ensuring interoperability of several policy and market definitions
for investments and building credibility among investors through national standards. Both Indicative Triggers
follow the CCDR recommendation to accelerate the development and use of a harmonized taxonomy of
sustainable finance and investments.
67. Expected results. These reforms are expected to lead to the following: an increase in the cumulative
green jobs supported with incentives under the Green Jobs Act since 2023, jobholders disaggregated by sex,
from 0 in 2022 to 4,000 in 2025 (Result Indicator 5); and for sustainable finance taxonomy: Sustainability-
related lending (loans to promote Renewable Energy and Energy Efficiency) by Domestic Systemically
Important Banks (D-SIBs) will increase from PHP 232 billion (or US$ 4.3 billion) in 2022 to PHP 255 billion (or
US$ 4.7 billion) by 2025 (Result Indicator 6) and new sustainable finance instruments (e.g., green bonds,
sustainability bonds, sustainability-linked bonds) issued by domestic companies in line with the sustainable
finance taxonomy will increase from 0 percent (2022) to 100 percent (2025) (Result Indicator 7).
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Pillar 2. Protect the environment and improve climate resilience
68. This pillar seeks to support reforms to protect the environment and improve climate resilience.
The reforms seek to enhance plastic waste management through reduction, recovery, and recycling,
including a mandate for large enterprises to fulfill plastic recovery targets. The reforms also focus on
promoting green transport by increasing the share of EVs in the transport sector. In particular, the reform
supports the development of EVs as a feasible mode of transportation for the government sector.
Implementing the Green Public Procurement Roadmap is also supported to encourage more production and
consumption of green goods and services through public procurement. Finally, improving the financial
conditions of the Philippine Crop Insurance Corporation will help mitigate climate-related risks to the
government budget and strengthen insurance to farmers.
Enhance plastic waste reduction, recovery, and recycling
Prior Action 5. To enhance plastic waste Indicative Trigger 6. To enhance plastic waste
management through reduction, recovery, and management through reduction, recovery, and
recycling of plastic waste, the Borrower has: (a) recycling of plastic waste, the Borrower, through
enacted the Extended Producer Responsibility Act the Department of Environment and Natural
(Republic Act No. 11898); and (b) through its Resources, has provided guidance requiring EPR
Department of Environment and Natural Resources Program registration, compliance monitoring and
(DENR), issued accompanying IRRs, mandating large evaluation, including on gender equality, and
enterprises to recover up to 80 percent of plastic enforcement, through the issuance of a
packaging waste by 2028 and to submit EPR Department Administrative Order (DAO).
programs describing a component on gender
equality.
69. Plastic waste pollution is a problem in the Philippines. The Philippines, together with China,
Indonesia, Thailand, and Vietnam, accounts for 55 to 60 percent of plastic waste entering the ocean. About
1.7 million tons of post-consumer plastic waste is generated in the Philippines each year, and it is estimated
that only 28 percent of recyclable plastic waste is actually recycled; the balance leaks into the environment
or is disposed of as a part of the mixed waste stream. The volume of plastic waste leaking into the
environment could double over the current levels by 2040 under the business-as-usual scenario.
70. Waste collection and recycling capacity is limited. The primary government-mandated
infrastructure for the recovery of recyclables and processing of biodegradables is Material Recovery Facility
(MRF). Though all barangays must establish their own MRF, out of the 1,710 barangays of Metro Manila, only
334 or about 20 percent have their own MRFs. On recycling capacity, the gap between total plastic resins
consumed and formal capacity to recycle the same is equivalent to 902,400 tons per year or 85 percent. Even
when accounting for the informal industry, which reportedly may recycle almost as much as the amount
processed by formal recyclers, the missing capacity is still significant at 70 percent of resins consumed. The
Philippines is only able to formally recycle/process 15 percent of post-use plastics compared to up to 27
percent in Thailand and up to 58 percent in Malaysia.
71. A reduction in the production of plastics and better management of waste is expected to benefit
both climate change mitigation and adaptation. Throughout their lifecycle, plastics have a significant carbon
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footprint and emit 3.4 percent of global greenhouse gas emissions.25 Moreover, the Philippines is highly
exposed to climate hazards like floods. Plastic waste can easily clog urban canals and drainage, exacerbating
floods during extreme events. The abundance of plastic debris leads to a faster and denser blockage and will
therefore lead to a more sudden backwater increase. A study conducted in a highly polluted urban area in
Indonesia observed that plastics can cause as much as 1 meter of additional water level increase in heavy
rains within the first hour.
72. The EPR Law aims to enhance resources conservation and recovery through extended producer
responsibility mechanism as a practical approach, focusing on plastic waste reduction, recovery, and
recycling. The reforms direct the development of environment-friendly products, and promote sustainable
consumption, and production. The EPR Law and its IRR is expected to promote greater waste reduction,
reuse, and recycle. Per EPR Law, the financial burden of waste management is shifted to the obliged
enterprises (OEs),26 thereby reducing the need for public finance required for collection, segregation,
disposal, and cleanup of packaging product waste created by OEs. Pursuit for higher recovery rates combined
with increased opportunity for public-private partnership ventures for improved technology or capacity of
facilities will increase recycling rates. The reform advances the implementation of the National Plan of
Actions for the Prevention, Reduction and Management of Marine Litter (May 2021) which specifies EPR as
a key measure to achieve the goal of zero waste to Philippine waters by 2040. It also complements the
implementation of ordinances passed by 489 LGUs which ban or regulate the use of plastic bags.
73. The Law covers large enterprises and sets ambitious plastic recovery targets. OEs are obligated to
implement EPR. These producers of products generating plastic packaging waste are now responsible for
managing waste generated throughout the life cycle of a product, especially its post-consumer or end-of-life
stage. They are likewise mandated to establish or phase-in EPR measures for plastic packaging to achieve
efficient management of plastic packaging waste, reduced production, importation, supply, or use of plastic
packaging deemed low in reusability, recyclability or retrievability, and plastic neutrality through efficient
recovery and diversion schemes. MSMEs are not covered by the EPR Law but are encouraged to practice EPR
voluntarily. Product producers are expected to recover up to 80 percent of their plastic packaging waste by
2028.
74. The Law authorizes the granting of incentives for outstanding and innovative projects and imposes
fines for non-compliance. Rewards will be provided to entities that have undertaken outstanding and
innovative projects, technologies, processes, and techniques in plastic management. The EPR Law outlines
an incentive scheme for entities to develop or undertake an effective SWM, including recovery and diversion
of the plastic product footprint. Meanwhile, large fines are imposed for non-compliance with the EPR Law.
The EPR Law sanctions OEs with fines ranging from PHP 5 to 20 million for failure to comply with the law. In
case of failure to meet the targets, the OEs shall pay the same fines set in the law, or a fine twice the cost of
recovery and diversion of the footprint or its shortfall, whichever is higher.
75. The Department of Environment and Natural Resources (DENR) has established a National
Framework for EPR to promote reduce, recover, and recycle the use of plastics along the product life cycle.
The Framework provides details on reduction of plastics and non-environment friendly products as part of
production processes, including guidance on reusability, recyclability or retrievability and proper disposal of
waste. It will also extend its guidance to include requirements for plastic packaging. The EPR program
25OECD (2022).
26Obliged enterprises are large enterprises whose total asset value exceeds PHP 100 million (US$ 1.7 million) and that generate
packaging waste.
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includes a 5-year plan with targets, and options to organize implementation by Producer Responsibility
Organization (PRO), and an audit system to determine compliance with the EPR Law and their own EPR
programs.
76. This reform will also support policies to promote gender equality in employment in the plastic
sector, which can contribute to narrow gender gaps in economic opportunities. Women’s greater
concentration than men’s in lower paying and vulnerable jobs extends to the plastic sector. Plastic
manufacturing and plastic waste management could provide greater opportunities for female workers.
Although employment data for the sector is limited, there is evidence that women in the Philippines are less
likely to be in employment in plastic production compared to men; and when they do, they are in lower paid
and often more hazardous work.27 The same applies to the waste management sector, where women are
more likely than men to be informal waste pickers, including sorting plastic, rather than formal workers and
junk shop owners.28
77. The EPR implementation program includes a focus on improving women’s involvement in the
plastic waste management sector. It includes a gender equality component, expected to cover, among
others, specific measures by large enterprises and their partners to improve the working environment and
provide targeted skills development to protect, attract and improve employment for women within the
plastic sector, with efforts towards formalization and increased payment. It is estimated that about 3,000
firms will submit EPR programs to DENR, a significant proportion producing plastic waste, though precise
data on waste footprint or recovery will not be available until DENR’s accounting systems for the EPR program
is fully operational. It is expected that, initially, 5 percent of the submissions of EPR programs by OEs (or
around 150) will include gender equality components. In the plastic production manufacturing alone, in 2017
there were indications of close to 25,000 employees, the vast majority men; the potential to include more
women was identified in a 2022 World Bank assessment.29
78. Indicative Trigger 6 supports a key component of the implementation of the EPR Law. As mandated
by the EPR Law the DENR will provide guidance requiring EPR Program registration, compliance monitoring
and evaluation, including on gender equality, and enforcement. The OEs would be provided guidance on
measures to take to meet the recovery requirements, for verification of the results and formal registration
of such plans with the EMB.
79. Expected result. The reforms supported by Prior Action 5 and Indicative Trigger 6 will lead to the
establishment of a compliance monitoring and evaluation system in DENR for verification of the annual EPR
program implementation, including gender equality components. The reforms will target the recovery of 40
percent, by amount, of plastic packaging introduced into the market by OEs, Collectives, and (PROs) by 2025
(Result Indicator 8). Prior Action 5 is also expected to have a positive effect on women’s involvement and
their respective working conditions in the plastic sector. Results indicator 9 captures the commitment to
increase the share of submitted EPR implementation programs with component on gender equality to 5
percent. Such component will include specifications around better working conditions for women and
targeted measures to improve their economic opportunities in the sector.
27 World Bank, Marine Plastic Management in Southeast Asia: The Gender Dimensions, 2022.
28 Ibid.
29 Ibid.
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Promote green transport
Prior Action 6. To provide an enabling environment Indicative Trigger 7. To provide an enabling

for the development and use of electric vehicles and environment for the development and use of
reduce dependence on fossil fuels, the Borrower, electric vehicles and reduce dependence on fossil
through the DOE, has issued IRRs to implement the fuels, the Borrower, through the Department of
Republic Act No. 11697, otherwise known as the Energy, has published a relevant issuance requiring
Electric Vehicle Industry Development Act of 2022. and enabling the government agencies to buy a
specified percentage of EVs in their new vehicle
purchases.
80. Transport is the biggest fossil fuel-consuming sector and the largest source of urban air pollution.
Within the transport sector, land transport, especially road transport, accounts for 87 percent of the total
emissions. Estimates from the CCDR suggest that emissions from the sector will quadruple by 2050 under
current scenarios and policies. Low-carbon transport, notably through electrification, would reduce GHG
emissions, and bring significant local benefits, particularly lower air pollution and the consequent lowering
adverse impacts on health. Such a shift would also enhance energy security by lowering the dependence on
imported fossil fuels.
81. The GOP recognizes electrification of transport as a critical element for transitioning to a low-
carbon economy. The intent to pursue the shift towards EVs has been espoused in the National Transport
Policy 2018, the PEP 2020-2040 and the PDP 2023-2028, yet the aspiration has remained mostly elusive.30
The low interest of users in EVs is attributable to the higher Total Cost of Ownership (TCO) and upfront capital
cost in comparison to the Internal Combustion Engine (ICE) vehicles, more predominantly in the higher
capacity vehicles; lack of familiarity and confidence in the technology; paucity of charging infrastructure;
insufficient after-sales support; and lack of prompt availability of replacement parts. In addition to these
factors, the shift to EVs in the public transport sub-sector was constrained by the shortfall or uncertainty of
robust franchise arrangements; budgetary support from the GOP; and sunk investments in the existing fleets.
On the supply side, domestic production of EVs has been limited to small-capacity vehicles, including e-
tricycles, e-motorcycles and e-jeepneys, typically at small scale or following build-to-order approach.
82. The Electric Vehicle Industry Development Act (EVIDA)31 is an ambitious reform aimed at
addressing critical supply and demand side constraints to increasing the share of EVs in the transport
sector. The Act envisions to achieve multiple policy objectives, most notably ensuring the country’s energy
security and independence, providing an enabling environment for the development of EVs, and promoting
and supporting innovation in and use of clean, sustainable, and efficient energy, and inclusive and sustainable
industrialization including through support to attract investments and upgrade the country’s participation in
regional and global value chains. The Act and IRRs are expected to provide new impetus to the goal of
promoting EVs as they provide for several measures for removing multiple supply and demand side barriers.
These measures include inter alia use of (i) fiscal and non-fiscal incentives to bring down the cost of
30 During 2010-20, there were only 12,965 registered EVs, accounting for 0.1 of the total registered vehicles in the country;
furthermore, more than 90 percent of them comprised of small capacity vehicles, viz., electric tricycles (e-trikes, 55 percent) and e-
motorcycles (37 percent). Sources: Land Transportation Office data, the PEP 2020-2040; and
https://businessmirror.com.ph/2022/02/03/bigger-philippine-participation-in-growing-ev-industry-pressed/
31 Republic Act No.11697, lapsed into the law in May 2022, and the IRRs of the Act have been promulgated in September 2022.
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acquisition of EVs and incentivizing their use; and (ii) mandates to increase the share of EVs in the corporate
and government fleets to at least 5 percent and (iii) the availability of EV Charging Stations at specified public
and private locations. The fiscal incentives envisaged under IRR, for example, are aimed at encouraging (a)
manufacture and assembly of EVs, EV Charging Stations (EVCS), batteries and parts and components
importing; (b) establishment and operations of EVCS and related support infrastructure; (c) importation of
completely built units of EVs and EVCS, and capital equipment and components used in the manufacture or
assembly of EV and EVCS; and (d) encouraging utilization of EVs by providing discounts from the payment of
the motor vehicle user’s charge. Some of the envisaged measures have already come into force, and more
are expected to be fully defined and operationalized soon, mainly through the proposed Comprehensive
Roadmap for the Electric Vehicle Industry (CREVI).
83. This DPL series supports the development of EVs as an attractive and feasible mode of
transportation, especially for the government sector. Prior Action 6 supports the creation of the legal
framework to provide an enabling environment for the development of EVs as an attractive and feasible
mode of transportation through the EVIDA and promulgation of its Implementing Rules and Regulations
(IRR). Indicative Trigger 7 focuses specifically on adoption of EVs in the government sector: To achieve the
overall goal of at least 5 percent share of EVs in the Government fleet envisaged under EVIDA, the Borrower
issued the Executive Order requiring and enabling the government agencies to buy a specified percentage of
EVs in their new vehicle purchases. A clear commitment and action from the government to adopt EVs for
its own use is expected to have a substantive demonstration effect as well as add to the acceptability of
similar EV share mandates for the fleets in other major transport segments, e.g., corporate, public transport,
tourism.
84. Expected result. The reform is expected to increase the share of EVs in the annual purchases of new
cars by National Government Agencies from less than 1 percent in 2022 to at least 10 percent by 2025 (Result
Indicator 10).
Encourage more production and consumption of green goods and services through public procurement
Prior Action 7. To incentivize public procurement of Indicative Trigger 8. To incentivize public

green goods, the Borrower, through the procurement of green goods, the Borrower,
Government Procurement Policy Board (GPPB) has through the GPPB, has issued a Resolution adopting
updated the GPP Roadmap by: (a) providing for a at the very least, five (5) product categories, that
monitoring system based on green tagging; and (b) may cover building materials, Information and
upgrading of green specifications; through GPPB Communication Technology (ICT), food and catering
Resolution No. 08-2022. services, training facilities/hotels/venues, and
motor vehicles.
85. To achieve the objective of implementing green public procurement, the GOP updated and
improved its GPP implementation. The GPP Roadmap harmonized green practices into existing procurement
processes. The Roadmap initially selected 20 products —10 Common-Use Supplies and Equipment (CSEs) and
10 non-Common-Use Supplies and Equipment (non-CSEs). The selection of the 20 products was based on the
following criteria, i.e., market readiness, environmental impact, cost implications, practicability, support to
Government environmental objectives, and support to the local economy. The GPPB adopted green
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specifications for the CSEs and non-CSEs. It mandated the Procurement Service32 to centrally procure the
CSEs and started a pilot for the non-CSEs, expecting to move to mandatory use of GPP for selected ones by
all procuring entities (PEs). The green technical specifications address key environmental impacts per
product. It adopted an approach to purchase energy efficient models with a restricted amount of hazardous
constituents to address resource consumption during the production phase, energy consumption during the
use phase, harmful emissions, and waste generation on packaging and end-use. The product must be
designed for recycling, longer life, and promotion of take back options. The adoption of these green technical
specifications supports the enforcement of sector policies relevant for sustainable development such as
energy, water and material efficiency, waste reduction, pollution and emission prevention including climate
change mitigation, greening the supply chains, among others.
86. A review of the execution of the GPP Roadmap by the GPPB-Technical Support Office (GPPB-TSO)
from 2020 to 2022 showed progress but also unveiled implementation challenges. The review showed an
increase in the total amount of prioritized CSEs procured according to GPP criteria from PHP 164.6 million in
2020 to PHP 225 million in 2021. Nevertheless, it revealed that only seven of the ten mandatory CSEs were
reported to be procured. Concerning the implementation of non-CSEs, a gradual increase in the number of
PEs adopting the green technical specifications was reported; however, the expected implementation of the
10 prioritized non-CSEs by the PEs under the pilot was not achieved as planned. Based on the share of total
government spending, GPP products only accounted for 0.14 percent and 0.4 percent in 2020, and 2021,
respectively. The review unveiled issues with the monitoring system to measure the implementation and
impact of the prioritized CSEs and non-CSEs. These monitoring issues adversely impacted GPPB’s analysis of
the compliance and performance of GPP initiatives. Moreover, PEs reported operational, technical, and
institutional challenges in adopting green technical specifications in procurement for non-CSEs, including the
lack of knowledgeable end-user representatives or units to conduct GPP; the absence of GPP experts in the
procuring entity; the need for guidelines in the identification of green specifications; the need for more
training on GPP; and the need to increase awareness of the PEs in the procurement of green products.
87. Areas for improvement in the GPP Roadmap have also been identified in the CCDR. These include
the need for strong linkages between different Government institutions and agencies involved in
implementing the GPP Roadmap; the need to establish proper monitoring, assessment, and reporting
mechanisms or tools on the impact of the GPP initiatives; and the need to expand the scope of the adopted
market-based approach to include the procurement of civil works and infrastructure projects in the GPP
Roadmap.
88. The GPPB Resolution No. 08-2022, supported by Prior Action 7, addresses the key challenges to
the implementation of the GPP Roadmap. This Resolution addresses all but one of the aforementioned
implementation challenges (the inclusion of works and infrastructure procurement). It also initiates steps
towards expanding the scope of the Government’s GPP through establishing and enforcing a systematic
monitoring system and a regular reporting on the implementation of the prioritized CSE and non-CSE items.
This includes using green tagging33 in Procurement Projects34 through the Philippine Government Electronic
Procurement System (PhilGEPS) to monitor the efforts toward sustainable consumption of green products.
In addition, the Resolution provides for a mechanism to review the effectiveness of the CSE items, and the
possible change or upgrade of their specifications. Finally, the Resolution also establishes a mechanism to
32 The central procurement arm of the Government.

33 Green tagging is the practice of identifying, measuring, and monitoring the use of Green Procurement in Procurement Projects.
34 Procurement Project, defined under GPPB Circular No. 06-2019 dated 17 July 2019, refers to a specific or identified procurement
covering goods, infrastructure projects, or consulting services.
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incentivize the implementation of GPP of non-CSEs within PEs, through the designation of the GPP focal
points. These focal points are tasked to monitor the implementation of the GPP Roadmap, advocate the
inclusion of green specifications, and assist the GPPB-TSO in the review of the GPP Roadmap, among others.
The designation of the focal points also promotes stronger linkages between Government institutions and
agencies implementing the GPP Roadmap and the GPPB-TSO.
89. Indicative Trigger 8 will support further reforms to enhance and foster the GPP Roadmap
implementation towards expanding its scope by covering broader categories of goods and services mainly
used by the Government. Green technical specifications will be developed for the 5 product categories to
be included in a well-established green directory. This will be further achieved by creating a well-established
directory of green technical specifications and considering the related asset management aspects. The GPP
reform would also further be strengthened with the Government’s plan of using life cycle cost (LCC)35 in
procurement planning and contract management for goods and infrastructure projects through the
development and issuance of a manual on technical specifications and costing using LCC for goods and
infrastructure projects with the view of introducing LCC in the evaluation or selection criteria later through
the amendment of the law.
90. Expected result. These reforms are expected to lead to a further expansion of the GPP, indicated by
an increase in the share of 10 mandatory non-CSEs from 0 percent in 2022 to at least 40 percent in 2025
(Result Indicator 11).
Protect budget and farmers from climate-related contingent liabilities
Prior Action 8. To mitigate climate-related disaster Indicative Trigger 9. To mitigate climate-related

risks to the government budget and to insured disaster risks to the government budget and to
farmers, the Borrower, through the DOF, has insured farmers, the Borrower, through the DOF,
directed the Insurance Commission (IC) to conduct will strengthen targeting of premium subsidies,
annual examinations of the Philippine Crop introduce new insurance products appropriate for
Insurance Corporation (PCIC)’s affairs, financial vulnerable smallholder farmers, and strengthen
condition, and its method of business, as evidenced PCIC coverage and operations, as evidenced by
by Department Order No. 038-2022 and Circular submission to Congress of the amended PCIC
Letter No. 2022-35. Charter.
91. Agricultural insurance can play an important role in climate change adaptation in the Philippines.
Climate variability and hazards are projected to adversely impact agriculture, livestock, and fisheries supply
chains, leading to low and volatile growth of the sector. Smallholder producers, especially female farmers,
are among the most vulnerable. The Philippines ranks fourth most affected by extreme weather events from
2000 to 2019 (Eckstein and others, 2021).36 Agricultural insurance can help farmers transfer their increasing
(due to climate change) risk of crop failure to (re)insurance markets. If properly designed and targeted, it can
35 One of the critical approaches introduced in green procurement is life cycle perspective thinking. It represents a holistic approach
that allocates life cycle management tools to assist decision-making at development and project stages, including green and
sustainable product development, production, green procurement, and final disposal.
36 The Philippine Statistics Authority (PSA) estimates the damage from natural extreme events and disasters from 2010 to 2019 at
around US$ 9 billion with 63 percent damage in agriculture. Most disasters are meteorological like typhoons, floods, and droughts
that negatively affect the production of staple crops, livestock, and fisheries.
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stabilize farm income, reduce poverty, and ensure a climate safety net for food producers.
92. Moreover, agriculture insurance could be a safety net and financial lifeline especially for women
farmers. Female farmers are constrained in participating in production/post-harvest activities and value
adding opportunities due to limited access to credit and financial services, technology, and other productive
resources.37 When faced with disaster events, women farmers have limited options for financial recovery.
The local labor market in rural areas does not provide flexible working opportunities for women as compared
to men who can switch from agriculture to construction, quarrying activities, and other forms of manual
labor. Agriculture insurance can be a financial lifeline for women farmers. For instance, the payouts after
2019 and 2021 typhoons have allowed women farmers to pay for food and other household expenses
following the disruption in farm livelihoods.38 There is a documented gap among farmers (18 percentage
points) and fisherfolks (36 percentage points) (October 2021 data), primarily since male heads of families
allowed to register as farm owners. It will be important to address this gender gap.39
93. Despite high premium subsidies, only one third of farmers are insured and their protection is
insufficient, while operations of PCIC require major changes. In the Philippines, agricultural insurance is
offered mainly by a public-owned Philippines Crop Insurance Corporation (PCIC). Insurance products offered
by PCIC are not suitable for most insured farmers and fisherfolk; for example, most of its clients are
subsistence farmers with 0.5 to 1.0 ha plots and its indemnity-based agricultural insurance products are not
suitable.40 The sum insured is low and even insured farmers cannot recover all their loss; after climate
disasters, these losses will fall on the private sector or the government as reinsurer of last resort. Premium
subsidies are not well targeted, with eligibility covering all farmers with less than 7 hectares regardless of
actual needs, meaning that the fixed subsidy budget cannot provide adequate protection to the most
vulnerable. PCIC faces multiple operational challenges. Its risk management is insufficient with PHP 75.0
billion (US$ 1.52 billion) liabilities in 2021 and almost no reinsurance protection. PCIC has no competitors:
private insurers cannot offer agricultural insurance because of significant barriers to entry.41
94. PCIC’s ineffective risk management poses large fiscal risks to the government and risk of unpaid
claims to insured farmers and fisherfolk. The PCIC has never been supervised by the IC. Its capital
requirements, investments, accounting, and risk management procedures were defined differently from
private sector commercial insurance companies in the Philippines. This led to insufficient risk management
with almost no reinsurance protection.42 Since solvency capital requirements were first set, PCIC’s exposure
has grown ten-fold, and a catastrophic event is likely to result in significant losses that PCIC will be unable to
37 Food and Agriculture Organization (FAO), Country Gender Assessment of Agriculture and the Rural Sector in the Philippines,
2018.
38 Hermoso, Ma. Krizette Mesina, 2023. ‘Typhoon insurance shelters Filipino farmers’, Up Front, 2 February. Accessed 3 February
2023.
39 Rice Watch Action Network (RWAN), 2022. Enhancing Gender Outcomes of Different Rice-Related Agencies through Gender
Analysis of Rice Supply Chain and Advocacies, End-of-Project Report to PCAF, pp. 9-10.
40 Most of PCIC clients are subsistence farmers with 0.5 to 1.0 ha plots and PCIC’s indemnity-based agricultural insurance products
are not suitable.

41 For example, private insurers are not eligible for government premium subsidies, and they are liable for taxes on their products
(12 percent VAT + 12.5 percent DST/stamp duty and municipal tax are charged on insurance products offered by private insurers).
42 International experience shows how dangerous it is to be inadequately reinsured. For example, in 2011, Mexico experienced a
widespread and severe freeze event (at least 1 in 50 years return period) which led to an average market loss ratio of 262 percent
and a 337 percent loss ratio for the self-insured crop funds (fondos). AGROASEMEX, a sole reinsurer of fondos, incurred a stop loss
reinsurance loss ratio of more than 1,200 percent with losses in excess of US$1 billion. AGROASEMEX was largely under-reinsured
and had to be re-capitalized by the Mexican government to avoid bankruptcy (World Bank 2013. Mexico: Agriculture Insurance
Market Review, June 2013).
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cover.
95. The government plans to improve the provision of agricultural insurance for Filipino farmers. These
reforms aim to: (1) increase the value for money of government subsidies and protect government’s fiscal
balance; (2) improve the adequacy and quality of protection of farmers against climate disasters; and (3)
strengthen efficiency of operations of agricultural insurance in the Philippines. These reforms are built
around two key elements, reflected through the Prior Action and the Indicative Trigger. The government is
also working towards broader reforms to the agricultural insurance sector to be introduced subsequently
through changes to the Agricultural Insurance Bill.
96. Prior Action 8 supports the reform to direct the Insurance Commission (IC) to audit PCIC’s financial
health and solvency to mitigate government’s fiscal risk and protect the insured farmers from the impact
of climate-related disasters. Placing PCIC under IC supervision aims to bring PCIC in line with insurance
market best practice and standards. This means compliance with solvency, minimum capital, and reinsurance
requirements and quarterly and annual audit and reporting requirements in line with other non-life insurers.
This will strengthen PCIC’s financial health, which mitigates climate-related disaster risks to the budget and
to insured farmers.
97. The Indicative Trigger 9 supports a further reform to improve financial protection of smallholder
farmers against climate-related hazards by amending PCIC Charter. The PCIC Charter provides the mandate
for the PCIC and sets out rules and processes for its operations. Last updated in 1995, it is not in line with
best practices and has gaps regarding products PCIC can offer (traditional indemnity-based products),
targeting of premium subsidies (covering all farmers with up to 7 ha plots), risk management (e.g.,
reinsurance) and other key functions of PCIC, and objectives of insurance cover.
98. Expected result. The expected result is increased financial resilience of PCIC measured by its
compliance with IC regulations by 2025 from no compliance in 2022. IC regulations are designed to protect
customers and government, ensure better value of PCIC products and services to farmers, and that the
company remains solvent and makes better use of funds (Result Indicator 12). This means more certain and
quicker payouts to farmers, and protection of the public balance sheet. Given that the majority of PCIC’s
clients are smallholder farmers registered in the RSBSA, this reform will protect some of the most vulnerable
farmers against climate shocks. A set of ancillary actions on effectiveness of RSBSA could increase the positive
impact of this reform (particularly the reform planned under the indicative trigger) by improving de facto
targeting of vulnerable smallholder farmers through nationwide implementation of farmer registry. This
could provide a more inclusive and equitable insurance to vulnerable farmers, especially female farmers,
affected by climate-related hazards.
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Table 6. DPF Prior Actions and Analytical Underpinnings

Prior Actions Analytical Underpinnings
1. To increase investment in infrastructure The WBG. 2022. FDI Screening and National Security Review: International
services, the Borrower has created the legal Trends and Lessons of Experience benchmarked the level of restrictiveness to
framework to open Public Service Sectors FDI, indicating sectors, such as telecom and transport, as highly restricted vis-
to 100 percent foreign ownership through à-vis regional peers. The screening made the case for reform to remove
the amendment of the Public Service Act restrictions on the basis that the Philippines experienced low level and rates
(Commonwealth Act No. 146), as evidenced of FDI share versus regional peers, revealing how limitations to foreign equity
through the enactment of the Republic Act in previously restricted public service sectors contributed to the lagging
No. 11659 on March 21, 2022. performance of the Philippines. The WBG & OECD 2022 Product Market
Regulations in the Philippines approached to the reform from the angle of
competition (or lack of thereof), offering a granular analysis of the degree of
concentration and the regulatory framework in each of the sectors subject to
restrictions. These analyses strengthen the case of advocacy for the PSA
amendment reform, and its IRR. The study also provided a basis for
estimating the potential impact in investment generation from the
introduction of this reform in each of the sectors. The World Bank also
supported the PSA amendment IRR through legal reviews and analysis of
specific sector regulations and the comparative narrative of similar
regulations introduced in peer countries. These international references for
definitions of national security, public services, and public utilities enabled the
drafting of the PSA amendment IRR.
2. To attract private investment in public 2020 World Bank PPIAF COVID19 Rapid Response Technical Advisory on PPPs
infrastructure and increase certainty in the found the need to improve the fiscal commitment and contingent liability
PPP framework the Borrower has: (a) management and reporting in PPPs and introduced to GOP the PPP Fiscal Risk
amended the Build-Operate-Transfer Law Assessment Model (PFRAM).
IRRs; and (b) approved the Guidelines and
Procedures on Processing PPP Proposals for
NEDA Board/ Investment Coordination
Committee (ICC) Evaluation and Approval,
as evidenced by the Certification of NEDA
Board Approval of such Guidelines and
Procedures on November 24, 2022.
3. To increase foreign direct investment in 2021 IFC report, “Ctrl-Alt-Delete: A Green Reboot for Emerging Markets”,
solar and wind energy, the Borrower, suggested that substantial capital investments are needed for accelerated
through the DOE, has amended Rules and decarbonization of the power sector. Increasing FDI is critical to bridging the
Regulations Implementing the Renewable financing gap, yet a 40 percent cap on foreign ownership on solar and wind
Energy Act to remove the 40 percent energy projects limits the amount of FDI that can be channeled into
foreign equity cap on exploration, developing RE infrastructure, as noted in the WBG 2022 Philippines Country
development, utilization and Climate and Development Report. This is of particular concern for developing
commercialization of natural resources, the Philippines’ rich offshore wind resources, which require not only a
as evidenced by the DOE Department substantial level of financing but also technology and management know-how
Circular DC 2022-11-0034. in construction, operation, and maintenance from advanced economies.
4. To increase demand for renewable Clean energy transition pathways were analyzed in the Bank Policy Note,
energy, the Borrower, through the DOE, has “Philippine Energy Transition: Towards a Secure, Affordable and Clean Energy
increased the minimum annual incremental Future” and the WBG 2022 Philippines Country Climate and Development
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generation required to be sourced from Report (CCDR). To accelerate decarbonization of the power sector, the share
renewable energy resources from 1% to of electricity generation from solar and other RE sources will need to grow
2.52% starting 2023 for Mandated substantially. A mandatory minimum share of RE in the energy supply is
Participants, as evidenced by the DOE among the policies and regulations that would help the Philippines to achieve
Department Circular DC2022-09-0030. this goal.

5. To enhance plastic waste management WBG. 2022. Philippines: Plastic Diagnostics. Field and Remote Sensing, River
through reduction, recovery, and Monitoring, and Microplastics Assessments; and Reducing Plastic Waste in
recycling of plastic waste, the Borrower the Philippines: An Assessment of Policies and Regulations to Guide Country
has: (a) enacted the Extended Producer Dialogue and Facilitate Action.
Responsibility Act (Republic Act No.
Market Study on Plastics Circularity Opportunities and Barriers. Combatting
11898); and (b) through its Department of
the Plastic Waste Crisis in the Philippines-Implementing Extended Producer
Environment and Natural Resources
Responsibility with Lessons Learned from Korea
(DENR), issued accompanying IRRs,
mandating large enterprises to recover up The study confirms the focus of EPR law on plastic packaging, as over 60
to 80 percent of plastic packaging waste percent of the waste detected was single use plastic packaging. The
by 2028 and to submit EPR programs Assessment of Municipal SWM Plans and Implementation shows limited
describing a component on gender financial and technical capacity of LGUs to effectively collect, segregate and
equality. recycle waste. The Market Study presents EPR as a feasible option to increase
recycling in the country and shares prioritized actions for the government to
improve plastic recycling and unlock its material value. The lessons learned
from Korea study lays out recommendations on important elements for the
Philippines to focus on during EPR implementation such as governance
framework, financial flows, and operationalization.
WBG. 2022. Marine Plastic Management: The Gender Dimensions. The study
provides evidence of women’s employment in plastic production and waste
management, including plastic recycling. It points to high rates of vulnerable
employment for women compared to men, and opportunities for women
workers in the sector.
6. To provide an enabling environment for The 2022 World Bank report, “Electricity Mobility Development for Public
the development and use of electric Transport in the Philippines,” assessed the existing EV ecosystem in the
vehicles and reduce dependence on fossil Philippines and developed policy options to accelerate EV uptake in the public
fuels, the Borrower, through the DOE, has transport sector. The report’s recommendations on demand- and supply-side
issued IRRs to implement the Republic Act policy options to promote low-carbon mobility and clean energy transition
No. 11697, otherwise known as the Electric through the growth of the e-mobility sector were integrated into the final
Vehicle Industry Development Act of 2022. draft of the EVIDA.
7. To incentivize public procurement of MAPS, Philippines CCDR, 2020/2021 Data collection for SDG Indicator 12.7.1
green goods, the Borrower, through the of the UNEP, Philippines Country Report: Current Status of Green Public
Government Procurement Policy Board Procurement (GPP) Implementation of the Switch Asia Regional Policy
(GPPB) has updated the GPP Roadmap by: Advocacy.
(a) providing for a monitoring system based
WBG. 2022. Philippines Country Climate and Development Report (CCDR).
on green tagging; and (b) upgrading of
green specifications; through GPPB The report shows the need for upgrading the Philippines GPP Roadmap:
Resolution No. 08-2022. strong linkages between different Government institutions and agencies
involved in implementing the GPP Roadmap; proper monitoring, assessment,
and reporting mechanisms or tools on the impact of the GPP initiatives; and
to expand the scope of the adopted market-based approach to include the
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procurement of civil works and infrastructure projects in the GPP Roadmap.
8. To mitigate climate-related disaster risks WBG. 2022. A study on Reforming Agricultural Insurance in the Philippines:
to the government budget and to insured Review and Roadmap. The study provides an overview of agricultural
farmers, the Borrower, through the DOF, insurance in the Philippines and provides a roadmap for reforms. It
has directed the Insurance Commission (IC) underscores such challenges as insufficient number of farmers covered, not
to conduct annual examinations of the well-focused government subsidies with large and consistently growing
Philippine Crop Insurance Corporation premium subsidy budget, multiple technical and operational challenges in the
(PCIC)’s affairs, financial condition and its PCIC including inadequate risk management, barriers for private sector entry
method of business, as evidenced by and inadequate insurance products for farmers. It recommends a set of
Department Order No. 038-2022 and comprehensive reforms in a legal and policy environment, operations of
Circular Letter No. 2022-35. agricultural insurance in the Philippines, and products offered to farmers.
World Bank “Technical Assistance to the Department of Agriculture’s
upgrading of the Farmer and Fisher Registry” aimed at upgrading of the
current Registry System for Basic Sectors in Agriculture (RSBSA) to develop a
comprehensive Farmer and Fisher Registry for the Philippines. The report
recommends fully mainstreaming RSBSA for subsidy targeting by PCIC to
increase the positive impact of the PCIC reform.
5. LINK TO CPF, OTHER BANK OPERATIONS AND THE WBG STRATEGY
99. The reforms supported by this DPL are well aligned with the 2019–2023 Country Partnership
Framework (CPF) for the Philippines and the WBG twin goals of ending extreme poverty and promoting
shared prosperity in a sustainable manner. The reform actions in this proposed operation will contribute to
the development objectives of the CPF; namely 5) Promote regulatory reforms to enhance competitiveness;
6) Improved efficiency of public service sectors in selected areas; 7) Improved income opportunities in
agriculture; and 10) Increased resilience to natural disasters and climate change.
100. The DPL complements several ongoing and planned Development Policy Financing (DPF) and
Advisory Services and Analytics (ASA) work programs in the country to achieve the CPF outcomes. It follows
on the recently completed DPL series on Promoting Competitiveness and Enhancing Resilience to Natural
Disasters aimed at advancing structural reforms on competitiveness and resilience. It also complements the
Financial Sector Reform DPL series, which supports the effort to green the financial sector through the
adoption of the Sustainable Finance Framework. It also complements a proposed DPL on Digital
Transformation towards strengthening long-term foundations for equitable growth. Several WBG’s core
diagnostics, including the Philippines CCDR, have informed the design of this DPL’s reform areas. The DPL is
also aligned with the Philippines Country Gender Action Plan FY2020-2024 priorities, in particular addressing
gender gaps in labor markets.
101. The program is consistent with the WBG crisis response framework for supporting green, resilient,
inclusive development (GRID) and the Global Crisis Response Framework (GCRF), which sets the World
Bank’s operational response to multiple current crises. Prior Actions 1 (PSA amendment), 2 (BOT Law IRRs),
3 and 4 (RE equity cap and RE mandate), 5 (EPR Law), 6 (EV adoption), and 7 (green procurement) are tagged
under GCRF Pillar 4: Strengthening Policies, Institutions, and Investments for Rebuilding. Prior Action 8
(agriculture crop insurance) is tagged under Pillar 3: Strengthening Climate Resilience.
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4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS
102. The GOP has actively consulted with key stakeholders in the formulation of policy actions for
promoting investment in RE under this DPF. The tasked working groups and commissions have typically
reached out to key implementing agencies during the process of drafting. Once an advanced draft is ready,
the lead agency provided open access of updates and modified drafts through the agency websites, social
media pages of agencies, with clear instructions on how and where to send comments and register for
stakeholder meetings. The leadership of the executive agency made a presentation of the flagship reforms
in bilateral and multilateral meetings of the President, and at key business conferences. For example, to
support increased private sector investment, especially in RE, the DOE engaged with private representatives,
inter-agency consultations, and the National Renewable Energy Board to clarify provisions of the proposed
amendments to IRRs of the REA and NREP.
103. The GOP followed a similar approach to advance investment, and public procurement reforms. The
National Economic Development Authority (NEDA) conducted multiple consultations in the drafting of the
Public Services Act, as amended, IRR. The Public Private Partnership (PPP) Center followed a similar
methodology to consult with public and private stakeholders in the revisions to the 2022 IRRs of the BOT Law
and ICC Guidelines. For consultations on reforms to protect the environment and improve climate resilience,
DENR, led by the regional offices of the Environmental Management Bureau (EMB), embarked on hybrid (in-
person and virtual) clustered consultations for Luzon, Visayas and Mindanao. In the case of green
procurement, the SPP/GPP Committee, composed of public sector representatives, engaged with private
entities to present and seek feedback in the drafting process. On the EVIDA IRR, the DOE, together with the
DOTr and other NGAs held a series of hybrid clustered and nationwide/plenary public stakeholder
consultations in August 2022.
104. The Bank is collaborating with development partners to prevent work redundancy and ensure
coordination of support. The authorities and the Bank have coordinated with other development partners
in the reform areas. The Asian Development Bank (ADB), International Fund for Agricultural Development
(IFAD), and the German Agency for International Corporation (GIZ) are also working on agricultural insurance,
focusing mainly on the development of alternative insurance products. USAID supported the DOE and DOTr
in the conduct of the EVIDA IRR consultations. The ADB has also been supporting efforts in sustainable public
procurement and extended producer responsibility. UNDP is supporting DENR on the implementation of the
EPR Law. GIZ supported GPPB on the development of an M&E system for green procurement. The Bank and
the ADB are coordinating on support for the Public Service Act reforms.
6. OTHER DESIGN AND APPRAISAL ISSUES
5.1. POVERTY AND SOCIAL IMPACT
105. The reforms supported by the DPL’s Prior Actions will generally have positive long-term poverty
and distributional effects, depending on how well the government manages the reforms, but some could
be negative short-term impacts. Some of the proposed PAs will lead to short-term increases in poverty and
inequality. Thus, crucial policy interventions and complementary reforms will be needed to ensure the
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intended and desired long-term effect of improving incomes—especially of those in the bottom of the
distribution. The reforms will affect the income distribution through two main channels: first, changes in
prices in goods and services will affect household incomes, and second, transformations in the labor market
will affect workers—both via transitory churning and via structural change in the long run. The ensuing
paragraphs will describe how the reforms supported under each of the three pillars would positively
contribute to positive poverty and social impacts.
106. Pillar 1: Accelerate the economic recovery and boost long-term growth. The 4 PAs under this Pillar
are expected to increase investments in public service sectors, RE and accelerate the development of green
jobs in the labor market. This is envisioned to be achieved by loosening restrictions on the inflow of FDI and
by removing anti-business provisions to promote public-private partnerships in infrastructure development.
The influx of investments is expected to boost growth and create more jobs—green, or otherwise—and to
decrease prices of goods and services (e.g., electricity) through increased competition and technical
efficiency. The reforms may then lead to increased economy-wide productivity which can lead to increased
wages, household incomes and overall standards of living.
107. However, each Prior Action under Pillar 1 may have different poverty and distributional effects
depending on the time horizon. The jobs generated and potential decrease in prices made possible by the
influx of investments as a result of reforms under Pillar 1 will be positive to poverty and inequality reduction.
108. Prior Actions 1 on the PSA amendment and 2 on the BOT Law IRRs will likely lead to a significant
positive effect on poverty and inequality. This will come from improved business conditions that will
encourage foreign and domestic businesses to invest, create jobs, and bring in improvements in technology.
109. Prior Action 3 on the RE equity cap will have positive poverty and distributional benefits.
Liberalizing FDI in RE may have positive distributional benefits with minimal destruction of jobs because
foreign capital has minimal crowding out in the RE space. The jobs generated and potential decrease in prices
made possible by the influx of investments will be salutary to poverty and inequality. A recent empirical
cross-country study shows that the RE spending multiplier is systematically higher than the non-eco-friendly
energy multiplier at the short and long-term horizons. This is explained by the higher labor-intensity of clean
energy spending compared to carbon-based fuel spending, and the fact that RE investment tends to induce
more domestic spending, for example, upgrading the electrical grid.43
110. For Prior Action 4 on the RE mandate, significant and negative poverty and distributional effects
may be felt in the short term, but these can be mitigated, while lower energy prices will benefit the poor
in the long run. According to the CCDR, the widespread adoption of renewables in the long run will lead to
lower cost of electricity supply as the reduction in fuel costs will offset the capital cost increase in renewable
investments and as the cost of renewable technologies continues declining. But in the short run, if the
National Renewable Energy Target is met by policies designed to hasten the energy transition (such as
generous subsidies), the cost of electricity supply may increase and hurt households and business. However,
if this transition is well-managed (e.g., introducing greater competition in RE investments through auctions),
then supply costs can decrease as cost-competitive renewable investments flow in. In addition, there should
be safeguards against policies meant to encourage renewables which may inadvertently hurt the poor. For
instance, net metering policies under revenue decoupling can increase electricity rates for the poor if the
43Nicoletta Batini, Mario di Serio, Matteo Fragetta, Giovanni Melina, and Anthony Waldron, “Building Back Better: How Big Are
Green Spending Multipliers?”, IMF Working Paper No. 2021/087. March 2021.
https://www.imf.org/en/Publications/WP/Issues/2021/03/19/Building-Back-Better-How-Big-Are-Green-Spending-Multipliers-50264
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fixed costs of utilities will be shifted to non-solar users, which are primarily poorer households.44 A well-
managed transition into renewables that does not place an unnecessary burden of high energy prices on
households—-coupled with the health co-benefits of pollution mitigation—can bring sustained long-term
benefits to the poor. The government has already put in place a lifeline tariff (Republic Act 11552) to mitigate
short-run effects of increasing short term prices in electricity. This targeted subsidy particularly benefits
marginalized end-users such as beneficiaries of the Pantawid Pamilyang Pilipino Program (4Ps).
111. Pillar 2: Protect the environment and improve climate resilience. Under this Pillar, the reforms are
aimed at improving environmental outcomes by mandating firms to be responsible to recover plastic waste,
for the government to encourage GPP and to encourage the development of the EV industry. These first two
sets of reforms incentivize businesses to shift towards packaging and products that cause minimal harmful
environmental impacts. However, at worst, this shift may cause short-term adjustments in production
processes that can possibly lead to increased prices, or job losses. The promotion of the EV industry through
the EVIDA may lead to short term adjustments and losses—especially in the more vulnerable transportation
sector—if reforms are not sequenced properly and if there will be excessive government subsidies. Hence,
these economic costs should be balanced with the environmental benefits from these reforms.
112. Prior Action 5 on the EPR Law can have a significant and negative effect in the short term, which
can be mitigated through education and training, but with likely long-term distributional benefits. It may
have short-run adverse impacts especially if the added cost to firms impacts employment and lead to higher
prices of goods for consumers. The plastics industry can also be directly affected. The Philippine Plastics
Industry Association, Inc. (PPIA) estimates that around 600,000 workers are part of the industry either
involved directly in the production of plastic products or through other upstream and downstream industries,
although the EPR Law only applies to large firms generating packaging waste.45 In the context of shifting to
”greener” jobs in the long run, however, recent estimates point to a potential increase of around 4 million
more jobs compared to a business-as-usual scenario where there are no active policies meant to promote
the shift towards a greener economy.46 To ameliorate the short-term impact on job loss and poverty, social
protection programs must be complemented with continuous education and training—especially those
geared towards reskilling and retraining. Moreover, the transition of employment across industries and
occupations could be managed with improved employment facilitation services, and labor market
surveillance, by DOLE and the local governments. Finally, unemployment insurance programs can help
ameliorate the impact of income drops due to the labor market transition. The government is aware of these
risks and is receiving support from the Bank on estimating the economic and distributional impact of this
reform, while other development partners are providing technical assistance to selected LGUs to increase
awareness on the potential changes in plastic production and management-related jobs and to support with
the transition.
113. Prior Action 6 on EV adoption may have negative short-run effects, which can also be ameliorated
through worker training, but it shows high potential for sustained poverty reduction and employment
generation in the long term. Negative short-run effects are possible, especially if proper complementary
reforms in the transportation sector are absent. This could happen, for example, with the shift to e-vehicles
for public transportation. Recent estimates show that 118,000 families (or 590,000 individuals) in Metro
44 See, for instance, https://energyathaas.wordpress.com/2021/06/01/rooftop-solar-inequity/

45 https://www.philippineplastic.com/supply%20chain%20linkages.html
46 Abrigo, M., D. Ortiz, A. Orbeta, and G. Llanto. 2021. “Greening the Philippine employment projections model: New estimates and
policy options.” PIDS Discussion Paper Series No.2021-26. Quezon City: Philippine Institute for Development Studies.
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Manila depend on the jeepney sector.47 In the short run, shifting from traditional jeepney to an electric
jeepney (Philippine Utility Vehicle) will cost PHP 1.3 million, PHP 500,000 above the purchase cost of a
traditional jeepney.48 This is unaffordable to most jeepney drivers with maximum gross daily earnings of PHP
2,500 (excluding expenses on fuel and maintenance). Hence, the law foresees targeted fiscal and non-fiscal
incentives and financing from financial institutions may be warranted to offset these high upfront costs.
Forthcoming implementing regulations will provide this incentives framework. Moreover, the shift towards
charging stations, which can be done in situ in homes and businesses, may jeopardize retail petroleum-
related jobs in the short run (e.g., gasoline attendants, cashiers). In the long-term, however, there can be
potential for sustained poverty reduction and employment generation, provided that policies will encourage
directed technological change that is country-appropriate. There are also new employment opportunities in
different upstream and downstream manufacturing and service-related industries. However, these jobs may
require specialized education and training, which could be difficult for the poor to access.49 The law expects
the government to set up a human resource development component to help workers affected by potential
job losses and to promote employment for the poor to benefit from the development of the EV industry.
Forthcoming implementing regulations will provide this framework.
114. Prior Action 7 on green procurement will have negligible negative short-run effects but can lead to
positive long-term effects if green industries can be supported and developed. The pool of eligible firms
that supply products and services that can satisfy GPP requirements may be shallow and thus will have
minimal impact on procurement policies of the government. At worst, eligible firms that supply these greener
products and services may be more expensive due to specialized technology. In the long term, provided that
emerging technologies can make greener alternatives more cost-competitive, firms can enjoy the twin
benefits of environmentally friendly products at lower prices. The government and households will gain if
this transition takes place. Moreover, as mentioned in PA 5, there is a potential to create 4 million additional
jobs if the shift towards a greener economy is supported. If improvements in green procurement contribute
towards supporting this shift towards a green economy, then lower prices, higher wages, and productivity
through the development of specialized skills will have the potential to increase household incomes.
115. Prior Action 8 on crop insurance will have a very small positive impact on poverty and inequality,
but this can be amplified with ancillary reforms. However, if this PA is part of a larger package of reforms
intended to create a more efficient, well-designed crop insurance scheme with significant private sector
participation, this will have positive effects on poverty and inequality in the long run. The reform, meant to
ensure fiscal soundness of the PCIC, may lead to increased efficiency in operations that will ensure faster and
more adequate payouts to farmers in times of disaster. However, the impact of this reform alone will have a
very small effect on poverty and inequality as only 1.7 million farmers out of the 8.8 million smallholder
farmers and fisherfolk have benefited from different PCIC programs.50 Complementary reforms are needed
for improved penetration and targeting of farmer-beneficiaries such as improving the Registry System for
Basic Sectors in Agriculture (RSBSA). However, the scope for crop insurance to protect rural household
incomes will be wider when the private sector is encouraged to enter the market. What the government can
do is address market failures especially concerning information and coordination. Since farmers have private
information regarding their risk profile, the government can help in providing high-quality yield data.
47 Biona, J. B. M., Mejia, A., Tacderas, M. A., Cruz, N., Dematera, K., & Romero, J. (2017). Alternative Technologies for the Philippine
Utility Jeepney. A cost-benefit study. https://doi.org/10.13140/RG.2.2.21019.57128
48 Kritz, B. (2018). Electric vehicles to dominate in Philippines’ jeepney modernization. Motion Digest Network.
49 https://www.bls.gov/green/electric_vehicles/
50 https://pidswebs.pids.gov.ph/CDN/PUBLICATIONS/pidsdps1938.pdf
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Moreover, it can also facilitate financial literacy for farmers. The PCIC, in particular, can also aid in data
collection to help in the design of insurance products. The PCIC can also facilitate the participation of the
private sector by expanding its role as a reinsurer for other firms willing to offer agricultural-related
insurance. With the government and private sector complementing each other, crop insurance can be a
potent tool to reduce vulnerability of farmers and rural households.
116. On the areas where the reforms supported by the DPL are likely to increase poverty or worsen
distribution, careful attention should be paid to ameliorate these adverse effects. First, there must be a
strong presence of adequate safety nets to mitigate adverse impacts on households, firms, and communities.
For instance, cash transfers to temporarily cushion the impact of increasing prices for vulnerable sectors
should be considered. Second, there must be enhanced regulatory support to ensure that markets will
function well. For instance, the Energy Regulatory Commission (ERC) capacity and powers should be
enhanced so that timely reviews and regulatory resets can be conducted to reflect the responsiveness of
price movements to current conditions. Moreover, the Philippine Competition Commission (PCC) can be
capacitated to detect and avert possible abuse of dominance in the sectors covered. The Department of
Labor and Employment (DOLE) can also enact labor market policies to mitigate the effects of excessive labor
churning such as unemployment insurance. Finally, proper implementation mechanisms and institutional
support must be in place to guarantee that the reforms will benefit the greatest number.
117. Constant monitoring, either through just-in-time analysis or through more detailed studies should
be undertaken in the DPL’s life cycle to evaluate impacts on households, firms, and communities. For
instance, microsimulations can be used to do evaluate distributional impacts. Specialized surveys can also be
commissioned to complement publicly available official statistical or administrative data. These types of
studies should be done periodically to evaluate the short term and the long-term effects of the reforms.
5.2. ENVIRONMENTAL, FORESTS, AND OTHER NATURAL RESOURCE ASPECTS
118. The reforms supported under the DPL are not likely to have significant negative effects on the
environment, forest, and other natural resources.
119. The Philippines has an adequate policy framework to address potential environmental risk and
impact. The Philippine Environmental Impact Statement System (PEISS)51 and its IRRs, the Department
Administrative Order (DAO) 2003-30 to guide PEISS implementation, requires the compliance of every
project, which significantly affects the quality of the environment. The environmental impact assessment
process recognizes direct and indirect environmental impacts, including issues under other laws such as
those pertaining to forest, protected areas and ecosystem services, wildlife and fishery, air quality,
conservation and protection of fresh and marine water, toxic substances and hazardous waste, mineral
resources, climate change, etc. The PEISS requires the identification of a wide range of measures to avoid,
minimize, mitigate, and compensate adverse impacts caused by a project, including alternatives to project
location, technology, and resources. It also requires including mitigation measures monitoring plans and
corresponding institutional management, and financial arrangements for implementation. All projects that
can potentially cause any form of significant negative impact to the environment are regarded as
51 Presidential Decree 1586
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environmentally critical and are therefore required to secure an Environmental Compliance Certificate (ECC),
which are subject to monitoring, validation, and evaluation/audit for performance assessment.
120. PEISS follow-up actions and enforcement can be improved to enhance the delivery of
environmental results effectively for development projects. The Bank is working closely with DENR and
other related agencies on possible capacity building for streamlining PEISS implementation to meet the new
concepts of Environmental, Social, and Governance (ESG), through knowledge sharing for enhancing the
effectiveness of the EIA process. The necessity to move towards ESG implementation effectiveness is also in
light of the GOP positioning the Philippines as a prime destination for climate- and ESG-related foreign
investments in its PDP 2023-2028. In this regard, GOP is committed to establishing an ESG Investment Task
Force composed of the public sector (NEDA, DENR, DTI, DOF, CCC, etc.), private sector, academia, and other
social partners. They are expected to support strengthening institutional capacity for DENR and related
agencies to minimize environmental footprint in investment project.
121. The majority of reforms supported under the first DPL will likely lead to positive environmental
outcomes on the environment, forests, or other natural resources. Prior Actions 3 to 7 are expected to have
significant positive effects. Prior Action 8 is expected to have negligible negative environmental effects. Prior
Actions 1 and 2 are expected to have negative environmental effects, but the effects can be partly mitigated
through the implementation of the country’s existing environmental policy framework.
122. Prior Actions 3 and 4 on transitioning to low-carbon energy production will lead to net positive
environmental outcomes. The Philippine CCDR estimates GHG emissions to rise from 234 MtCO2e in 2020
to 399 MtCO2e in 2030. The energy sector is the single largest contributor to GHG emissions in the
Philippines, accounting for 54 percent of total emissions. The CCDR emphasizes the benefit from an energy
transition toward low- and zero-carbon alternatives, including significant benefits from reduced air pollution.
The policy decision to remove 40 percent capital restriction to liberalize FDI investment on solar and wind
energy will lead to scale up of RE, a reduction of dependence on coal-fired power generation and lower GHG
emissions over time. However, the development of solar power may have negative effects on the environment
and natural habitats, as large solar power plants require clearing of land for construction with potential long-
term effects on native biodiversity. This can be addressed by local land planning to identify and classify
appropriate land for solar power development. In addition, the development of rooftop solar could cut the
demand for land. Offshore wind facilities need larger areas compared to land-based wind farms. DOE is working
with related agencies, including LGUs, on marine spatial planning for proper planning and siting of the facilities
to minimize potential impacts of offshore and land-based wind generation. This could help avoid and minimize
impacts on marine wildlife and habitat.
123. The Philippines can mitigate the potential negative environmental effects from RE development
through its existing policy framework. Potential environmental effects from RE development are addressed
through the PEISS process and environment laws pertaining to protected areas, biodiversity, fishery, toxic
substances, and hazardous wastes. The disposal of hazardous waste from solar and offshore wind power
plants are required to follow the Toxic Substances and Hazardous and Nuclear Waste Control Act that
regulates the importation, manufacture, processing, sale, distribution, use, and disposal of these forms of
waste. The “Renewable Energy Safety, Health, and Environment Rules and Regulations” issued by DOE (2012)
provide guidance and requirements on safety and protection against hazards to health and address
environmental concerns such as air, land, and water pollution during the operation of RE facilities.
124. The newly adopted EPR Law and its accompanying IRRs (Prior Action 5) will have positive
environmental effects. It will enhance resource conservation and recovery through extended producer
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responsibility. It is expected to promote greater waste reduction, reuse, and recycling, whereby less plastic
waste will leak to the environment and to the oceans. The policy also brings climate change mitigation and
adaptation co-benefit to reduce GHG emissions and flood risks caused by plastics blocking drainage
infrastructure.
125. Prior Action 6 on promoting the development and use of EVs through the EVIDA will bring
environmental benefits, provided the GOP has regulations and guidelines in place to prevent and minimize
potential related adverse effects. The Philippine CCDR identifies transport as the biggest fossil fuel-
consuming sector and the largest source of urban air pollution. The CCDR estimates the emissions from the
transport sector will quadruple by 2050 under the current scenarios and policies. The transition to low-
carbon electrified transport is expected to reduce GHG emissions and bring significant local benefits,
particularly lower air pollution for urban areas. This is also expected to lead to lowering adverse impacts on
health. The reform provides an enabling environment for manufacturing and assembling of EVs, charging
stations and related parts which will likely have potential adverse impacts to the environment.
126. The same law tasks DENR and DTI with the formulation of mitigating policies. Currently, there is a
lack of technical guidelines for construction or installation of charging stations, knowledge on battery
recycling technology and standards and regulations on EV battery reuse. DENR is tasked by the EVIDA to
promulgate rules and guidelines on the recycling and disposal of EVs, charging stations and related
equipment, parts, and components, and batteries consistent with the Toxic Substances and Hazardous and
Nuclear Waste Control Act. They are also assigned to establish guidelines for accurate characterization,
disposal and handling of waste involving EVs, charging stations and related equipment, parts and
components and batteries. DOE needs to introduce minimum energy performance and other technical
parameters for EV and technical standards and parameters for EV batteries. DTI is tasked to coordinate with
DENR to develop a program of manufacturing and recycling standards for EV batteries and facilities. All these
rules, guidelines and standards are expected to ensure the implementation of the Policy Action will not likely
cause significant environmental effects.
127. Prior Action 7 on upscaling the implementation of green public procurement will likely lead to a
positive environment outcome. GPP seeks to purchase goods, works and services with a reduced
environmental impact through their product life cycle. It contributes to address, for example, (i) waste
through specification of processes or packaging that can be reused and recycle of materials; (ii) soil, water,
and air pollution through specification of chemical and hazardous substance uses; (iii) GHG emissions through
specification of carbon dioxide footprint; and (iv) energy and resource efficiency through indication of energy
and material use. GPP enables purchasers to make informed choices and performs their role in the green
transition. It also helps raise environmental awareness by identifying both positive and adverse
environmental impacts of products.
128. Prior Action 8 on the agriculture crop insurance reform is not expected to have significant
environmental effects. Agricultural insurance, where it is linked to seasonal production credit, enables
farmers to purchase and apply higher levels of improved seeds, fertilizer, and plant protection chemicals.
The process of intensification is typically driven by increased use of fertilizers and other chemical inputs,
which leads to negative environmental effects. However, where agricultural insurance is introduced as part
of an embedded packaged program with inputs and technical assistance and education for farmers in soil
and water conservation measures (e.g., zero tillage and green mulching), insurance can introduce discipline
by putting a price on risk and to motivate farmers to move out of high-risk crops into lower-risk crops that
are more suited to the local environment. Such integrated measures actively seek to reduce adverse
environmental effects and to introduce sustainable farming practices. Agricultural intensification could lead
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either to decreased land under cultivation owing to higher crop yields or to increased land under cultivation
owing to higher profitability, demand increases, and output price responses. Experience in other countries
shows that agricultural insurance can contribute to reduced land under cultivation by increasing output and
income and profits per unit area. The Bank’s Philippine Rural Development Project Scale-up is providing
support for agriculture insurance and promotion of improved inputs, climate-smart technologies, and
innovations that are expected reduce adverse environmental effects.
5.3. PFM, DISBURSEMENT AND AUDITING ASPECTS
129. PFM Environment: The PFM narrative has a strong underpinning that captures the strengths and
weaknesses identified in the 2016 PEFA assessment. The GOP has significantly improved its PFM at the
national level over the past decade and continues to be a strong performer in the region. The 2016 Public
Expenditure and Financial Accountability assessment indicated that three of the seven PFM pillars
(transparency, policy-based budgeting, and asset and liability management) are strong and have improved
since the 2010 assessment. The financial statements of government agencies are audited annually. There
were no major qualifications on the DOF annual financial statements in the most recent years, and most
matters raised in previous years’ audit reports were fully or partly addressed. The national government
budget is made available to the public online through the DBM website, from the budget proposal stage (the
National Expenditure Program) up to the time it is signed by the President of the Philippines and made
effective through the passage of the General Appropriations Act (GAA).
130. The GOP continues to make strides in PFM reform. The WBG Second and Third Philippines
Development Policy Loan to Foster More Inclusive Growth (2014) supported the formulation and adoption
of a Unified Accounts Code Structure to be used across budgeting, accounting, and reporting. A Treasury
Single Account has been implemented and the Bureau of Treasury (BTr) is working to expand its coverage.
The previous DPL for improving fiscal management included actions to strengthen budget preparation, cash
management and adoption of the Budget and Treasury Management System (BTMS) as the basis for a single
national government financial information system. It is to be noted, however, that the use, rollout, and
further development of the BTMS was indefinitely suspended effective August 1, 2021, in view of changes in
the strategic direction of the envisioned Integrated Financial Management Information System (IFMIS) under
the Public Financial Management (PFM) Reform Roadmap. It was reactivated pursuant to PFM Committee
Resolution No. 1-20221 dated December 19, 2022. To improve budget predictability and execution, the GOP
gradually tightened the validity period for obligations since 2019 when an annual cash budget was adopted.
The adoption of cash appropriations effectively limited the validity of obligations to the year funds are
appropriated. The Budget Reform Bill is one of the priority bills of the current administration and there is a
renewed commitment and support to pass the bill. Passage of the law is being considered as one of the
triggers in the second operation of the sustainable recovery DPL series.
131. The Government of the Philippines has made great strides during the last two decades towards
strengthening the country’s public procurement system particularly through the adoption of the public
procurement Republic Act (RA) 9184 in January 2003. Several measures were taken under this law to
address systemic procurement corruption, including inter alia the mandatory use of public bidding, periodic
monitoring, and evaluation of the performance of the procurement system through the Agency Procurement
Compliance and Performance Indicator system and the mandatory use of the Philippine Government
Electronic Procurement System (PhilGEPS) electronic procurement’s feature of bid and contract award
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notification. It also established Government Procurement Policy Board (GPPB) as the public procurement
regulatory and normative body, initiated the professionalization of public procurement practice,
collaboration with Civil Society Organizations as procurement observers, and the promotion of sustainability
through the introduction of the Green Public Procurement Roadmap in 2017. However, many challenges
remain to be addressed in further reforms, especially with respect to eligibility and rules of participation,
procurement approaches for optimal value for money and sustainable procurement, independent
complaints review body, and modernization of PhilGEPS operational functionalities for increased efficiency.
A comprehensive assessment of the Philippines public procurement system using the revised Methodology
for Assessing Procurement Systems (MAPS) has been jointly conducted by the GPPB-TSO, the World Bank,
and Asian Development Bank. The assessment’s recommendations, which were validated with the key public
procurement stakeholders on May 17, 2021, are expected to guide the government in prioritizing the reform
activities needed to enhance the effectiveness of the public procurement system in supporting government
policy objectives and improve the efficiency in public services delivery while achieving value for money with
good governance under a transparent environment towards sustainable development.
132. To hasten project implementation and to effectively implement the government’s initiative on
implementing a cash budgeting system, the conduct of advance procurement has been strengthened and
institutionalized through administrative issuances. Transparency, being one of the governing principles in
public procurement, has been at the forefront of various procurement reform initiatives of the government
such as the posting of critical procurement information not only on the PhilGEPS website but also on the
websites and official social media platforms of government agencies in the Executive department, and the
development and the posting of blacklisting orders by the agencies in GPPB portal. One positive impact of
the COVID-19 pandemic is the full implementation of agencies of various digital transformation initiatives
launched by the GPPB pre-pandemic, such as the use of digital signature and use of videoconferencing and
similar technology in the conduct of meetings/conferences. Pending the modernization of the PhilGEPS,
electronic bid submission has likewise been allowed so as not to impede procurement activities during the
COVID-19 pandemic. The PhilGEPS is currently undergoing its modernization with the virtual store and
merchants’ registry already in-placed. The electronic bidding feature, which includes an online platform for
the creation of the annual procurement plan, purchase requests, e-bulletin, e-bid submission, online conduct
of post-qualification, online purchase order/contract management, and online filing of requests for
reconsideration and protest, is under pilot implementation. The full implementation of PhilGEPS will start
gradually in 2023 with the National Capital Region first and then the rest of the regions.
133. The BSP foreign reserves control environment is based on domestic assessments. The Philippines
does not have an active IMF program to develop safeguard assessments.52 The BSP is also not subject to
international audit. Its financial statements are audited by the Commission on Audit (COA). The World Bank
and the IMF have been relying on the audited financial statements released by the COA. The auditor’s
opinions in the BSP-audited financial statements related to calendar years 2019 to 2021 are unmodified
(unqualified). However, the audit opinion contains an “Emphasis of Matter” paragraph relating to deviation
from Philippine Accounting Standards 1 on the presentation of financial statements on income and expenses
in CY2021. The paragraph reflects the auditor’s judgment that the matter is fundamental to users’
understanding of the financial statements. The auditor’s opinion is not modified in respect to the matter
emphasized and remained unmodified.
52
The IMF has provided TA to BSP such as the Monetary and Capital Markets Department's TA program, and the Central Banking
Operations and Strategy’s TA program, which supports the BSP in enhancing its capacity to manage foreign reserves effectively.
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134. The proceeds of the DPL will be deposited in US dollars in a deposit account at the BSP that forms
part of the FX reserves once the loan becomes effective and the World Bank is satisfied with i) the progress
achieved by the GOP in carrying out the program, ii) the adequacy of the GOP macroeconomic policy
framework, and iii) submission of withdrawal application in required format in US dollar. Immediately after
disbursement of the loan, the GOP will ensure that the loan amount is promptly accounted for in the GOP
budget system in the General Fund, and thereby is available to finance budget expenditures. The GOP will
provide a written confirmation to the World Bank within 30 days that this accounting and transfer has been
completed, including the exchange rate applied to convert the loan proceeds into Philippine peso, and the
name and number of the government’s bank account in which the funds have been deposited and that the
exact amount was received in the account. Disbursements of the loan will not be linked to any specific
purchases, and no procurement requirements have to be satisfied, except that the borrower is required to
comply with the standard negative list of excluded items that may not be financed with World Bank loan
proceeds, as defined in the General Conditions for IBRD Financing: Development Policy Financing, dated
December 15, 2018 (revised on April 1, 2021, January 1, 2022, and August 1, 2022). If any portion of the loan
is used to finance excluded expenditures as so defined in the General Conditions, the World Bank has the
right to require the GOP to promptly, upon notice from IBRD, refund the amount equal to such payment to
the World Bank. Amounts refunded to the World Bank will be cancelled from the loan.
5.4. MONITORING, EVALUATION AND ACCOUNTABILITY
135. The DOF is the main WBG counterpart for budget support operations, including the proposed
operation. Policy dialogue and monitoring and evaluation of the program supported by this DPL series also
extend to the Department of Energy- (Energy Utilization Management Bureau), Anti-Red Tape Authority,
Department of Transportation, Public-Private Partnership Center, National Economic and Development
Authority, Department of Trade and Industry, Government Procurement Policy Board, Department of
Environment and Natural Resources (Environmental Management Bureau), Department of Labor and
Employment, Bangko Sentral ng Pilipinas, Department of Agriculture, Climate Change Commission, and
Bureau of Treasury. The GOP has designated the DOF’s International Finance Group as the WBG’s main
counterpart in the policy dialogue and monitoring of the operation.
136. Indicators selected to monitor progress toward achievement of the PDOs reflect defined areas of
action and correspond to the expected outcomes of the PAs. They include an appropriate mix of specific
qualitative and quantified targets, which are attributable, relevant, and time-bound, and are expected to be
sufficient to enable effective monitoring of the project’s achievement of the PDO. The Pillars and result
indicators in the policy framework are aligned with government priorities. Since the policy targets are aligned
with regular programs of the relevant agencies, their reporting mechanisms will be used.
137. Grievance Redress. Communities and individuals who believe that they are adversely affected by
specific country policies supported as PAs or tranche release conditions under a WB Development Policy
Operation may submit complaints to the responsible country authorities, appropriate local/national
grievance redress mechanisms, or the WB’s Grievance Redress Service (GRS). The GRS ensures that
complaints received are promptly reviewed to address pertinent concerns. Affected communities and
individuals may submit their complaints to the WB’s independent Inspection Panel which determines
whether harm occurred, or could occur, as a result of the WB's non-compliance with its policies and
procedures. Complaints may be submitted at any time after concerns have been brought directly to the WB's
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attention, and WB Management has been given an opportunity to respond. For information on how to submit
complaints to the World Bank’s corporate GRS, please visit http://www.worldbank.org/GRS. For information
on how to submit complaints to the Bank’s Accountability Mechanism, please visit
https://accountability.worldbank.org.
7. SUMMARY OF RISKS AND MITIGATION
138. The overall risk is moderate. The institutional capacity for implementation and sustainability, and
the stakeholder risks are substantial, while political and governance, macroeconomic, sector strategies and
policies, technical design of program, fiduciary, and environment and social risks are moderate.
139. The institutional capacity for implementation and sustainability risk is substantial. This operation
proposes a series of reforms that require inter-agency coordination, making their success dependent on
institutional capacity. For example, NEDA leads the design of the IRRs for the PSA reform (Prior Action 1), yet
its successful implementation implies harmonization of definitions, and consistency of provisions, across the
17 sector regulators whose mandate will be affected by the reform. Similarly, the amendment to the BOT
law calls for coordination and institutional capacity at the subnational level, to allow LGUs to execute the PPP
projects at the local level. The EPR Law (Prior Action 5) and EVIDA (Prior Action 6) reforms also require
substantial inter-agency coordination. The Bank will provide technical assistance to support the agencies
involved in these reforms.
140. Stakeholder risk is substantial, as there are strong political economy forces resisting sector
liberalization reforms. There is a risk that the reform to open public service sectors to foreign investment
(Prior Action 1) will face resistance from domestic incumbents, interested in preserving the status quo.
Private interest groups may attempt to derail the reform drive to resist foreign competition in liberalized
public service sectors through the judiciary, for example, by introducing legal challenges to either keep the
telecom sector under the label of public utilities or preserve the domestic shipping lines under the category
of critical infrastructure, appealing to concerns of national security. Similarly, domestic incumbents can also
bring challenges to the removal of foreign equity cap on exploration, development, utilization, and
commercialization of solar, and wind energy (Prior Action 4) based on the existing limitations of foreign
ownership and exploitation of natural resources enshrined in the constitution, but which do not apply to RE
resources. Despite the consultations held for the EPR Law (Prior Action 5) and the EVIDA (Prior Action 6)
reforms held, these are complex reforms with many private sector stakeholders. To mitigate these risks, the
laws foresee subsidies and tax incentives to encourage participation. It will be important that the central
government agencies, DOF and NEDA, play a coordinating and advocacy role to keep the reforms on track.
To this effect, the Bank will remain engaged on these reforms, convene, and share knowledge with
stakeholders who have shown an interest in removing restrictions in these sectors, and in bringing foreign
expertise and capital to boost their performance. In addition, the Bank will provide technical assistance to
assist NEDA and the DOE in implementing sector regulations that will promote competition and level the
playing field.
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Table 7. Summary Risk Ratings
Risk Categories Rating

1. Political and Governance ⚫ Moderate
2. Macroeconomic ⚫ Moderate
3. Sector Strategies and Policies ⚫ Moderate
4. Technical Design of Project or Program ⚫ Moderate
5. Institutional Capacity for Implementation and Sustainability ⚫ Substantial

6. Fiduciary ⚫ Moderate
7. Environment and Social ⚫ Moderate
8. Stakeholders ⚫ Substantial
9. Other ⚫ Low
Overall ⚫ Moderate
.
Note on environment and social risks: There are allegations of forced labor in the production of solar panels and
components. This DPF focuses on policies and institutional reforms in the Philippines. DPF proceeds are not
earmarked to any specific purpose, including the manufacture or procurement of solar panels or components.
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ANNEX 1: POLICY AND RESULTS MATRIX
Prior actions and Triggers Results
Prior Actions for DPL 1 Indicative Triggers for DPL 2 Indicator Name Baseline Target
1. To increase investment in 1. To increase investment in 1. Annual average foreign 0.55 percent of GDP 0.76 percent of GDP
infrastructure services, the Borrower infrastructure services, the Borrower, investment in Public (2017-2022 average) (2023-2025 average)
has created the legal framework to through the NEDA and sector regulators, Service Sectors (percent
open Public Service Sectors53 to 100 has approved the implementing of GDP).
percent foreign ownership through the regulations to open Public Service
amendment of the Public Service Act Sectors to 100 percent foreign
(Commonwealth Act No. 146), as ownership through the adoption of the
evidenced through the enactment of General IRRs and sector IRRs.
the Republic Act No. 11659 on March
21, 2022.
2. To attract private investment in public 2. To increase access to resources for 2. Time needed to reach 29.9 months (2022) 12 months (2025)
infrastructure and increase certainty in transparent and better prepared PPPs at final decision on PPPs by
the PPP framework the Borrower has: (a) the local levels, the Borrower, through the ICC (Investment
amended the Build-Operate-Transfer Law the Philippines PPP Governing Board, has Coordination Committee)
IRRs; and (b) approved the Guidelines and established a window, with supporting from receipt of a
Procedures on Processing PPP Proposals resources, business plan and guidelines, complete and compliant
for NEDA Board/ Investment within the Project Development and project proposal
Coordination Committee (ICC) Evaluation Monitoring Facility (PDMF) for local PPPs (months).
and Approval, as evidenced by the through a resolution.
Certification of NEDA Board Approval of
such Guidelines and Procedures on
November 24, 2022.
3. To increase foreign direct 3. To increase foreign direct investment 3. Annual average 0.02 percent of GDP 0.06 percent of GDP
investment in solar and wind energy, in solar and wind energy, the Borrower development cost of
53“Public Service Sectors” means those sectors of the economy offering certain public services, for general business purposes, and which are identified in the Public Service Act
(CA 146, as amended), Section 13(b).
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the Borrower, through the DOE, has has streamlined permitting processes for investment in solar (2017-2022 average) (2023-2025 average)
amended Rules and Regulations renewable energy investment through a projects (percent of
Implementing the Renewable Energy regulation. GDP).
Act to remove the 40 percent foreign
equity cap on exploration,
development, utilization and
commercialization of natural resources,
as evidenced by the DOE Department
Circular DC 2022-11-0034.
4. To increase demand for renewable 4. Share of electricity 22 percent (2021) 28 percent (2025)
energy, the Borrower, through the DOE, generation from
has increased the minimum annual renewable energy
incremental generation required to be (percent).
sourced from renewable energy
resources from 1% to 2.52% starting
2023 for Mandated Participants,54 as
evidenced by the DOE Department
Circular DC2022-09-0030.
4. To support green jobs creation, the 5. Cumulative green jobs 0 (2022) 4,000 (2025)
Borrower, through the Climate Change supported with incentives
Commission (CCC), has launched an under the Green Jobs Act
assessment and certification system for since 2023, jobholders
green jobs under the Green Jobs Act of disaggregated by sex.
2016 by issuing Green Jobs Guidelines
under a Joint Memorandum Circular (JMC).
5. To mobilize sustainable finance, the 6. Sustainability-related PHP 232 billion (or US$ 4.3 PHP 255 billion (or US$ 4.7
Borrower, through the Financial Sector lending (loans to promote billion) (2022)(a) billion) (2025)(a)
Forum, has issued the Sustainable Finance Renewable Energy and
Taxonomy Framework based on Energy Efficiency) by
54“Mandated Participants” means electric power industry participants which are mandated to comply with the RPS annual requirement which includes entities enumerated in
Rule 3, Section 11 of this RPS On-Grid Rules.
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international principles, as evidenced Domestic Systemically
through a BSP Circular, a SEC Important Banks (D-SIBs)
Memorandum Circular, and an IC Circular. (US$ billion).
7. New sustainable
finance instruments (e.g.,
0 percent (2022) 100 percent (2025)
green bonds,
sustainability bonds,
sustainability-linked
bonds) issued by
domestic companies in
line with the sustainable
finance taxonomy
(percent).
5. To enhance plastic waste 6. To enhance plastic waste management 8. Recovery of plastic 0 percent (2022) 40 percent (2025)
management through reduction, through reduction, recovery, and packaging as share of
recovery, and recycling of plastic waste, recycling of plastic waste, the Borrower, amount introduced into
the Borrower has: (a) enacted the through the Department of Environment the market by Obliged
Extended Producer Responsibility Act and Natural Resources, has provided Enterprises (OEs),
(Republic Act No. 11898); and (b) guidance requiring EPR Program Collectives, and Producer
through its Department of Environment registration, compliance monitoring and Responsibility
and Natural Resources (DENR), issued evaluation, including on gender equality, Organizations (PROs)
accompanying IRRs, mandating large and enforcement, through the issuance (percent). 0 percent (2022) 5 percent (2025)
enterprises to recover up to 80 percent of a Department Administrative Order
of plastic packaging waste by 2028 and (DAO). 9. Share of submitted EPR
to submit EPR programs describing a implementation
component on gender equality. programs with
component on gender
equality (percent).
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6. To provide an enabling environment 7. To provide an enabling environment 10. Share of electric Less than 1 percent (2022) At least 10 percent (2025)
for the development and use of electric for the development and use of electric vehicles in the annual
vehicles and reduce dependence on vehicles and reduce dependence on purchases of new cars by
fossil fuels, the Borrower, through the fossil fuels, the Borrower, through the National Government
DOE, has issued IRRs to implement the Department of Energy, has published a Agencies (percent).
Republic Act No. 11697, otherwise relevant issuance requiring and enabling
known as the Electric Vehicle Industry the government agencies to buy a
Development Act of 2022. specified percentage of EVs in their new
vehicle purchases.
7. To incentivize public procurement of 8. To incentivize public procurement of 11. Share of the 10 non- 0 percent (2022) At least 40 percent (2025)
green goods, the Borrower, through the green goods, the Borrower, through the CSEs (Common use
Government Procurement Policy Board GPPB, has issued a Resolution adopting supplies and equipment)
(GPPB) has updated the GPP Roadmap at the very least, five (5) product have become mandatory
by: (a) providing for a monitoring categories, that may cover building under the GPP (percent).
system based on green tagging; and (b) materials, Information and
upgrading of green specifications; Communication Technology (ICT), food
through GPPB Resolution No. 08-2022. and catering services, training
facilities/hotels/venues, and motor
vehicles.
8. To mitigate climate-related disaster 9. To mitigate climate-related disaster 12. Financial resilience of Not compliant (2022) Compliant (2025)
risks to the government budget and to risks to the government budget and to Philippine Crop Insurance
insured farmers, the Borrower, through insured farmers, the Borrower, through Corporation (PCIC)
the DOF, has directed the Insurance the DOF, will strengthen targeting of measured by compliance
Commission (IC) to conduct annual premium subsidies, introduce new with Insurance
examinations of the Philippine Crop insurance products appropriate for Commission (IC)
Insurance Corporation (PCIC)’s affairs, vulnerable smallholder farmers, and regulation.
financial condition, and its method of strengthen PCIC coverage and
business, as evidenced by Department operations, as evidenced by submission
Order No. 038-2022 and Circular Letter to Congress of the amended PCIC
No. 2022-35. Charter.
Notes: (a) at exchange rate prevailing on April 10, 2023.
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ANNEX 2: FUND RELATIONS ANNEX
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ANNEX 3: LETTER OF DEVELOPMENT POLICY
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ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE
Significant positive Significant poverty, social or

Prior Actions or negative distributional effects positive or
environment effects negative
1. To increase investment in infrastructure services, the Borrower has created
the legal framework to open Public Service Sectors to 100 percent foreign
ownership through the amendment of the Public Service Act (Commonwealth No Significant and positive effect
Act No. 146), as evidenced through the enactment of the Republic Act No. 11659
on March 21, 2022.
2. To attract private investment in public infrastructure and increase certainty in
the PPP framework the Borrower has: (a) amended the Build-Operate-Transfer
Law IRRs; and (b) approved the Guidelines and Procedures on Processing PPP
No Significant and positive effect
Proposals for NEDA Board/ Investment Coordination Committee (ICC) Evaluation
and Approval, as evidenced by the Certification of NEDA Board Approval of such
Guidelines and Procedures on November 24, 2022.
3. To increase foreign direct investment in solar and wind energy, the Borrower, Significant and positive effect in
through the DOE, has amended Rules and Regulations Implementing the the short and long term
Yes, significant
Renewable Energy Act to remove the 40 percent foreign equity cap on
positive effects
exploration, development, utilization and commercialization of natural
resources, as evidenced by the DOE Department Circular DC 2022-11-0034.
4. To increase demand for renewable energy, the Borrower, through the DOE,
has increased the minimum annual incremental generation required to be Significant and negative effect
Yes, significant
sourced from renewable energy resources from 1% to 2.52% starting 2023 for in the short term. Significant
positive effects
Mandated Participants, as evidenced by the DOE Department Circular DC2022- positive effect in the long term
09-0030.
5. To enhance plastic waste management through reduction, recovery, and
recycling of plastic waste, the Borrower has: (a) enacted the Extended
Producer Responsibility Act (Republic Act No. 11898); and (b) through its Significant and negative effect
Yes, significant
Department of Environment and Natural Resources (DENR), issued in the short term. Possible long-
positive effects
accompanying IRRs, mandating large enterprises to recover up to 80 percent term distributional benefits
of plastic packaging waste by 2028 and to submit EPR programs describing a
component on gender equality.
6. To provide an enabling environment for the development and use of electric
Possible negative effect in the
vehicles and reduce dependence on fossil fuels, the Borrower, through the DOE, Yes, significant
short term. Possible long-term
has issued IRRs to implement the Republic Act No. 11697, otherwise known as positive effects
distributional benefits
the Electric Vehicle Industry Development Act of 2022.
7. To incentivize public procurement of green goods, the Borrower, through
the Government Procurement Policy Board (GPPB) has updated the GPP Very small or negative effect in
Yes, significant
Roadmap by: (a) providing for a monitoring system based on green tagging; the short term. Possible long-
positive effects
and (b) upgrading of green specifications; through GPPB Resolution No. 08- term distributional benefits
2022.
8. To mitigate climate-related disaster risks to the government budget and to Very small short-term/long-
No
insured farmers, the Borrower, through the DOF, has directed the Insurance term effects of this reform in
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Commission (IC) to conduct annual examinations of the Philippine Crop isolation. Possible long-term
Insurance Corporation (PCIC)’s affairs, financial condition and its method of positive effects with
business, as evidenced by Department Order No. 038-2022 and Circular Letter complementary reforms.
No. 2022-35.
Page 65

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Public Disclosure Authorized

The World Bank

FOR OFFICIAL USE ONLY

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

PROGRAM DOCUMENT FOR A

IN THE AMOUNT OF US$ 750 MILLION TO

REPUBLIC OF THE PHILIPPINES

PHILIPPINES FIRST SUSTAINABLE RECOVERY DEVELOPMENT POLICY LOAN

May 16, 2023

Macroeconomics, Trade and Investment Global Practice

Republic of the Philippines

ABBREVIATIONS AND ACRONYMS

REPUBLIC OF THE PHILIPPINES

PHILIPPINES FIRST SUSTAINABLE RECOVERY DPL

SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................3

1. INTRODUCTION AND COUNTRY CONTEXT ...................................................................................5

SUMMARY OF PROPOSED FINANCING AND PROGRAM

Project ID Programmatic If programmatic, position in series

Proposed Development Objective(s)

Borrower: DEPARTMENT OF FINANCE

PROJECT FINANCING DATA (US$, Millions)

Total Financing 750.00

International Bank for Reconstruction and Development (IBRD) 750.00

Climate Change and Disaster Screening

Indicator Name Baseline Target

IBRD PROGRAM DOCUMENT FOR A PROPOSED

1. INTRODUCTION AND COUNTRY CONTEXT

2. MACROECONOMIC POLICY FRAMEWORK

2.1. RECENT ECONOMIC DEVELOPMENTS

Table 1. Supply and Demand-side Contributions to Growth

Table 2. Key Economic Indicators

2020 2021 2022 1/ 2023 2024 2025 2026

Savings and investment

2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY

Table 4. Key Fiscal Indicators

Total Expenditures 23.5 24.1 23.4 21.8 21.0 20.1 20.1

Figure 1. National Government Debt-to-GDP Projections under Alternative Scenarios

Source: World Bank staff calculations.

Table 5. External Debt Composition (September 2022)

US$ million Share of Total Debt Percent of GDP

Long term 91,532 19.4 25.4

12 “matatag, maginhawa, at panatag na buhay sa lahat”.

4.1. LINK TO GOVERNMENT PROGRAM AND OPERATION DESCRIPTION

14 World Bank, Overcoming Barriers to women’s work in the Philippines, 2022.

4.2. PRIOR ACTIONS, RESULTS AND ANALYTICAL UNDERPINNINGS

Pillar 1. Accelerate the economic recovery and boost long-term growth

Prior Action 1. To increase investment in Indicative Trigger 1. To increase investment in

Trade Liberalization Act (RTLA)

Attract private investment in public infrastructure

mobilize private investment in local infrastructure.

Increase share of renewable energy (RE) in power generation

Pillar 2. Protect the environment and improve climate resilience

Enhance plastic waste reduction, recovery, and recycling

Promote green transport

Prior Action 6. To provide an enabling environment Indicative Trigger 7. To provide an enabling

Prior Action 7. To incentivize public procurement of Indicative Trigger 8. To incentivize public

32 The central procurement arm of the Government.

covering goods, infrastructure projects, or consulting services.

Protect budget and farmers from climate-related contingent liabilities

Prior Action 8. To mitigate climate-related disaster Indicative Trigger 9. To mitigate climate-related