PHILIPPINES 2008 Philippines Development Forum Clark Field, Pampanga, Philippines March

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Background PHILIPPINES 2008 Philippines Development Forum Clark Field, Pampanga, Philippines March Report to the World Bank s Board of Executive Directors 1. The 2008 Philippines Development Forum (PDF) was held in Clark Field, Pampanga from March 26-27,2008. The PDF evolved from the Consultative Group (CG) process, which has expanded into a multi-stakeholder forum that facilitates substantive policy dialogue on the country s development agenda among participants from national and local government units, civil society, academia, private sector, and the international development partners 2. As in past PDFs, the Government of the Philippines, led by the Department of Finance, organized and chaired the 2008 PDF. Finance Secretary Margarito Teves served as the Chair of the meeting. The World Bank, represented by World Bank Country Director for the Philippines, Mr. Bert Hofman, served as co-chair for the meeting. Vice-President Noli de Castro delivered the opening statement for the Government, and President Gloria Macapagal-Arroyo delivered the keynote address. Government representatives at the meeting included eight Cabinet secretaries and other high-level officials from various Government agencies. Twenty-one delegations from multilateral and bilateral agenciedteams were represented. A variety of national and international NGOs, private sector representatives and international chambers of commerce were represented as well. In total, over 300 participants attended. 3. Similar to previous PDFs, this particular meeting did not include a pledging session and instead focused on substantive policy dialogue among the various stakeholders on key thematic areas, drawing on the ongoing discussions throughout the year which are facilitated by the various PDF working groups. Overview of Agenda and Discussions The overall theme of the 2008 PDF was Accelerating Inclusive Growth and Deepening Fiscal Stability. The PDF focused on this theme, with three break-out discussions organized on three relevant sub-themes: (i) Accelerating growth through improved competitiveness; (ii) Creating opportunities for more inclusive growth; and (iii) Deepening macro-fiscal stability and improving governance. A special presentation was also built into the agenda on the Government s procurement harmonization agenda, which covered plans for new implementing rules and regulations for the Government s procurement law to help improve efficiency and accountability in the use of public funds. 5. Mr. Jamie August0 Zobel de Ayala, Chairman of Ayala Corporation (one of the largest business conglomerates in the Philippines), shared remarks on the Philippines development challenges from the perspective of the private sector, particularly on the issues of investment climate and competitiveness. Father Francis Lucas, Chairperson of the Asian NGO Coalition (ANGOC) for Agrarian Reform and Rural Development, shared views from a civil society participant on the challenges of inclusive growth from the perspective of a civil society organization such as ANGOC, which works with rural communities at the grassroots level.

2 2 6. During the meeting, the international development partners congratulated the Philippines for its strong performance in growth, particularly over the past three years, which has been faster than any similar period in the past two decades. The country s growth rate of 7.3% in 2007 made the Philippines one of the stronger performers in the Southeast Asia. The remarkable turnaround from only a few years ago was cited as a reflection of the Government s determination to address the country s macroeconomic issues. This commitment to fiscal discipline has maintained market confidence, resulting in lower spreads and significant capital inflows. Average inflation last year was the lowest since the 1980s. And, after several years of expenditure compression, the trend in declining capital expenditures was reversed in 2007 with the general improvement in fiscal balance. Key Messages 7. During the discussions, the PDF participants identified three critical challenges: (i) sustaining growth and maintaining fiscal discipline; (ii) supporting growth that benefits the poor; (iii) strengthening governance and fighting corruption. On sustaining growth and maintaining fiscal discipline, participants acknowledged the need for continued vigilance in macroeconomic and fiscal management. Finance Secretary Margarito Teves identified measures to improve tax collection on a sustainable basis, noting that improvements in the fiscal position provide additional headroom for investments in vital infrastructure and social services. Sec. Teves also stressed the importance of improving tax compliance, explaining his plans to focus on an approach this year that sees the successful completion of cases under the Run After Tax Evaders (RATE) and Run After the Smugglers (RATS) programs. He also said that the Government would establish a joint governmentcivil society body to monitor revenue collection agencies, gather lifestyle and corruption information, and follow up major evasion and smuggling cases. 8. Improving the investment climate and putting into place critically needed infrastructure were recommended to sustain and accelerate growth, create more jobs, and deliver basic services to a greater number of the poor. While participants noted the significant increase in domestic and foreign investments, the current level remains low compared to similar economies in the region. Mr. Zobel de Ayala shared his views on how to attract more investments by suggesting to build on the fundamental issue of a progressive governance standard. He noted that clear adherence and enforcement of the rule of law, transparency, respect for the sanctity o f contracts, consistency in policies were all essential ingredients to establishing an investor-friendly climate that would lead to economic growth. 9. On supporting growth that benefits the poor, the Government and its partners expressed concern about the increase in poverty over the past few years despite high growth and about the wide regional disparity in the incidence of poverty. There was also concern about realizing the goal to reduce maternal mortality rate, one of the Millennium Development Goals (MDGs). There was consensus that growth would need to be more inclusive if it were to reduce poverty and sustain development. This means that the benefits of growth need to reach all segments of the population, in all the regions, especially in the rural areas where most of the poor live, and in the conflict-affected areas in Mindanao. It was recognized that reducing poverty will depend on improving agricultural productivity through agricultural diversification, completion of agrarian reform, and strengthened property rights. Targeted programs such as KALAHI-CIDSS were thought to have proven effective in delivering essential public services to the poor and could be scaled up. 10. A related issue raised was the high population growth rate which had further increased the challenge of achieving broad based growth and poverty reduction. The partners expressed support for

3 policy measures and programs that would improve the incomes of poorer Filipinos, generate better jobs, increase investments in health and education and in rural infrastructure. In addition, they highlighted the need to protect the poor who were more prone to damages brought about by natural disasters, climate change, and the current global increase in rice/food prices. Local Government Units (LGUs) were identified as vital important partners in achieving these objectives. Promoting citizen participation in governance, especially at the local level was cited as a good way to enhance transparency and limit the scope for corruption. 11. On strengthening governance and fighting corruption, a number of participants from the private sector and CSOs emphasized that controlling corruption, strengthening the rule of law, and promoting transparency, were important for improving resource allocation. A CSO participant, Fr. Francis Lucas, reminded the PDF participants of the link between governance and development, noting that bad governance leads to exclusive growth. 12. The Government, including the President, also recognized the centrality of these issues as a constraint to better use of public funds, and reiterated their commitment to intensify the fight against corruption. The Government presented its priority reform agenda for improving the quality of public spending, which includes: deepening results-based budgeting through better performance monitoring; development of internal audit and control capacities; and harmonization of budgeting, accounting and audit procedures and reporting requirements. 13. The development partners welcomed the establishment of the Procurement Transparency Group which has strong civil society presence. Promoting citizen participation in public bidding, especially at the local level was identified as a good way to enhance transparency, provide more access to information, and limit the scope for corruption. In this regard, the government s public expenditure management reform was cited as needing a stronger emphasis on improving efficiency, effectiveness, and accountability in budget execution. With increased procurement transparency, opportunities for corruption and mismanagement would be reduced. 14. The participants linked these good governance measures to sustainable and inclusive growth. In this regard, deepening procurement reform was identified as a priority in improving efficiency and accountability in the use of public money. The partners welcomed the Government s implementation of the procurement law which included the use of electronic procurement and consistent application of open competitive bidding methods. Participants agreed that there was a need to institutionalize the Government s successful harmonization of procurement documents and manuals with ODA partners through Implementing Rules and Regulations-B (RR-B), which would specify the regulatory framework for procurement of all foreign-assisted projects. This would also strengthen the implementation and enforcement of the law, including at the level of local government units. The development partners expressed their appreciation for the Government s proposal to engage them in the formulation of the IRR-B. Summary/Conclusion 15. Overall, there was a strong common message that emerged from the forum, which is the need for the country to sustain growth and fiscal consolidation, focus more on the poor, and improve governance. Many of the international development partners were impressed by the free, open and constructive, and substantive discussions among government, development partners, civil society and the private sector. The PDF was seen as an effective process in stimulating a healthy debate among all parts of Filipino society to help set priorities in the development agenda. Mr. Hofman, co-chair of the PDF, thanked the participants for their active participation and enthusiasm not just in the PDF event, but in the discussions throughout the year, which are facilitated by the various PDF working

4 4 groups and help move the substantive agenda forward. On behalf of the international development partners, Mr. Hofinan assured the Government and other participants that the international development partners were friends of the Philippines, and were ready to support the efforts of the Government and other partners in sustaining growth and making growth matter for all Filipino, especially the poor. 16. Please see the attached Co-Chairman s Closing Statement for more details on the discussions. Statements, presentations and other documentation on the PDF are also posted in the PDF website: pdf.ph The 2008 Philippines Development Forum (PDF), was attended by over 300 participants including delegations from Australia, Austria, Canada, China, Czech Republic, Finland, France, Germany, Japan, Korea, Netherlands, New Zealand, Spain, Sweden, United Kingdom, and the United States of America. The international organizations that participated in the meeting included the Asian Development Bank, European Commission, International Monetary Fund,, various United Nations Agencies and the World Bank Group. Other participants included representatives from national and local government agencies, a variety of national and international NGOs, private sector, and international chambers of commerce. The previous PDF meeting for the Philippines was held on March 7-8, 2007 in Cebu, Philippines under the theme of Achieving Broad-Based Growth through Sustained Reforms and Higher Investments.

5 Attachment 2008 PHILUPPINES DEVELOPMENT FORUM March 2647,2008 Clark Field, Pampanga, Philippines CLOSING STATEMENT BY CO-CHAIRPERSON MR. BERT HOFMAN COUNTRY DIRECTOR, PHILIPPINES, WORLD BANK CLARK, PAMPANGA Honorable Chairman, Secretary Margarito Teves; Honorable National and Local Government Officials; Honorable Ambassadors and Representatives of the International Development Community; Distinguished Representatives from the Private Sector and Civil Society; Ladies and Gentlemen: 1. First, let me say that it has been my privilege to Co-Chair this Forum for the first time. The Philippines Development Forum represents the coming together of such a range of participantsnational and local government leaders, representatives of the private sector, civil society, and academics-with the purpose of sharing views and ideas on how best to support the development and implementation of policies and actions to improve the lives of Filipinos. I, and many other participants, have been struck with the candor of the discussions over the last two days, which have been rich, open, substantive, and constructive. 2. On behalf of the international partners, I would like to thank the Government of the Philippines, particularly the Department of Finance, for its excellent organization of this event - and Secretary Teves for his strong leadership of the Philippines Development Forum. I would like to express our appreciation for the participation and commitment of President Gloria Macapagal Arroyo; Vice-president Noli de Castro; and so many esteemed members of the Cabinet. And I would like to thank all the participants: your contributions and work are testimony to the spirit of friendship and partnership for the development of the Philippines. 3. The PDF is an excellent opportunity for all of us working toward development of the Philippines to meet and reflect on what has been accomplished in the last year and agree on the priority tasks going ahead. Since the last PDF important progress has been made but some actions remain on the agenda. For example, the Government has increased budget allocations to health and education, based on clear strategies and refined medium-term expenditure frameworks. The Government is in the process of developing a similar social protection strategy and has launched a promising poverty alleviation program, Ahon Pamilyang Pilipino, based on an improved poverty targeting method. The passage of the Anti-Red Tape Law has already resulted in reduction in some business processing time, which can contribute to improved investment climate. Turning to the pending agenda, several legislative initiatives still await approval by one or both houses. These include the bills intended to rationalize fiscal incentives, to reform excise taxes, to set up a credit bureau, and to update and rationalize compensation of civil servants. Likewise, major policy decisions such as the clarification of the LGU financing framework have not yet been reached.

6 2 4. Our discussions over the last couple of days revolved around a common theme and realization: the need for sustained growth, inclusive growth and good governance. In the past year, the Philippines has experienced strong performance in growth. Over the past three years, growth has been faster than any similar period in the past three decades. Important credit for this achievement rests with the Government, which over this period, has made great strides in reestablishing macroeconomic and fiscal stability. Yet, at this Forum, we all realize that now the critical challenge will be to sustain this growth, and broaden it to be more inclusive. Indeed, despite growth, alarmingly poverty has increased. The need for action on several broad, linked fronts became quite apparent during our deliberations. First, growth needs to be sustained if it is to benefit all Filipinos. This calls for continued vigilance in macroeconomic and fiscal management. It also calls for improvements in the investment climate and, related, for putting into place critically needed infrastructure. Second, even if sustained, this growth must be more inclusive so that it benefits all Filipinos, and particularly the poorest. The nature of growth, its sources, and the way its dividends are invested is of essence. Poorer Filipinos must participate in growth and benefit from improved public and private investment and service delivery if MDG targets are to be met. Clearly, the importance of improved investment climate and infrastructure needed for growth to be more inclusive was quite apparent, as was the important role that not only the national government, but also local governments would need to play in enhancing and delivering on inclusive growth. Third, for growth to be sustained and to be more inclusive, we all recognized that improved governance will be fundamental. As one participant noted, governance is indeed the foundation for economic development. Moving forward, there is consensus that this will require a concerted effort from all of us here in this room. In this concluding statement, I cannot hope to capture the richness of all our discussions on these issues. But please allow me to take this opportunity to highlight some of the key points of our discussions, some of the consensuses reached, and commitments made. Recent Progress and Main Challenges 5. The meeting recognized the recent impressive macroeconomic performance of the Philippines. Growth has gained momentum over the past few years, and at 7.3% in 2007 made the Philippines one of the stronger performers in the region. Economic policy has greatly contributed to this performance. The government s commitment to fiscal discipline has improved market confidence, resulting in lower sovereign spreads and significant capital inflows. Average inflation last year was the lowest since the 1980s. And, after several years of expenditure compression, the trend in declining capital expenditures was reversed in 2007 along with the general improvement in fiscal balance. 6. The challenge now is to ensure that growth is sustained and-to make a serious dent in poverty levels-to make growth more inclusive. Despite recent growth, participants stressed the need for deepening this growth and making it more sustainable. This challenge is all the greater, given the prospects of a global slowdown. As the President emphasized, the imperative will be to stay focused on economic reform.....and to invest, invest, and invest in the nation. Several participants noted that recent growth has been consumption-led and boosted by strong performance in services, with continued stagnation in the manufacturing and industrial sectors. It will be critical to increase investment levels, which continue to be low. Likewise, participants highlighted the need to increase productivity from its current levels if growth is to be accelerated over the longer term. Discussions also focused on the finding that poverty has increased over the past few years and that there is wide regional disparity not only in growth but also in the incidence of poverty. Making growth more inclusive will be critical to the objective of poverty reduction, but it will also be important to the achievement of the MDGs and the very sustainability of development.

7 3 SUSTAINING GROWTH Maintaining Macro-stability and Fiscal Discipline 7. Significant progress has been made in reducing the public debt over the past few years. This is a job that is not easy and is never over. Or to use Secretary Teves words, this amazing race...is a marathon, not a sprint. The Government is to be commended for its steadfast attention to working toward meeting fiscal targets. Indeed, in 2007 the government more than met the budget deficit target of 0.9% of GDP-recording a fiscal deficit of only 0.1% of GDP. A decline in the tax effort was compensated for by privatization receipts, increasing overall revenues. This allowed an increase in capital expenditures and a further reduction in public debt. Going forward, however, participants highlighted the importance of increasing revenues on a sustainable basis instead of relying on one off privatization proceeds in order to finance the spending needed on infrastructure and social services without jeopardizing fiscal stability. 8. Improving the fiscal position over the longer term requires strengthening tax administration, especially in view of the planned roll-back in corporate taxes. This will need, as a first step, a more effective tax registry. In this regard the recent progress made in cleaning up the stop-filers database is a welcome development. Participants took note of the government s tax administration priority actions for the coming year, which include strengthening collection enforcement and arrears management, establishing third party information linkages, strengthening information sharing between the BIR and LGUs, strengthening the audit program and revamping and strengthening the Run after the Tax Evaders (RATE) and the Run after the Smugglers (RATS) programs. The meeting noted however that poor capacity and weak incentives in the revenue agencies remain a severe constraint to implementing tax administration improvements. In this context, the rationalization of the BIR and DBM would be an important step. Participants also emphasized the need for reform of excise taxes and rationalizing fiscal incentives to raise the tax effort on a sustainable basis. 9. The meeting welcomed the government s efforts to further develop the capital markets that would both enable the government to rely more on domestic financing and provide an alternative investment vehicle for Filipino savers. Improving the Investment Climate 10. Participants commended the positive developments over the past year. Domestic and foreign investments increased sizably. However, they noted that the level of investment remains low compared to peer countries. They emphasized that in addition to macroeconomic stability, good governance, particularly consistency of policy, transparency, property rights and the sanctity of the rule of law, plays a fundamental role in shaping the investment climate. The need to reduce red tape and transactions costs were also highlighted. Clarification of roles and responsibilities between government agencies and between levels o f government would help in this regard. Specific actions identified during the discussions include: accelerated implementation of the Philippine Business Registry; implementation of the Credit Information System; assessment and improved operations of LGUs One-Stop Shops and DTI s NERBAC; and streamlining government processes pertaining to business operations and closure. Upgrading Infrastructure 11. Inadequate infi-astructure-from transport to energy, solid waste, communication to water supply and sanitation-poses a severe threat to the investment climate and competitiveness of the

8 4 Philippines, and thus to the creation of jobs, as well as the delivery of basic services to the Filipino population. 12. Development partners agreed that sustaining and accelerating growth in the Philippines will require higher levels of investments in infrastructure. Some participants stressed the importance of a strategy that focuses on high priority investments. Fulfilling the infrastructure gap requires action in the following six areas: (i) adopting a Comprehensive Integrated Infrastructure Plan (CIIP), preparing master-plans by sub-sector so that they can be fast-tracked; (ii) improving project preparation and faster resolution of technical and legal issues such as Rights of Way and land acquisition ;(iii) introducing clear competition policies and economic regulation in infrastructure provision, separating operations from regulation, in key areas such as toll roads, ports and aviation; (iv) strengthening capacity for infrastructure development by improving quality management systems, and increasing the skills and knowledge needed to develop public-private partnership (PPP) projects at the national and local level; (v) improving the linkages between planning, budgeting and funding processes at all levels; and (vi) ensuring that user charges and cost recovery considerations are duly taken into account so as to strike the balance between affordability for the poor and industry competitiveness. In expanding infrastructure investment, it will also be important to ensure social and environmental sustainability. 13. Considerable progress has been made on an ambitious infrastructure reform agenda, especially in the power and communication sector. However, full implementation of a comprehensive infrastructure reform program remains critical. In light of the importance of infrastructure for investment climate and competitiveness, participants in the PDF agreed to form a new Working Group on infrastructure. SUPPORTING INCLUSIVE GROWTH 14. A central theme of our discussions was how to make growth in the Philippines more inclusive. Lagging progress in reducing poverty and other key MDG indicators stresses the imperative for action. Increasing the Incomes of Poorer Filipinos 15. Poorer households need increased opportunities to participate in and contribute to the growth process. In the Philippines, where most of the poor live in rural areas, it was recognized that facilitating pathways out of poverty will depend on improving agricultural productivity through diversification, completion of agrarian reform, and strengthened property rights. It was agreed that government resources for accelerating growth and improving competitiveness would need to focus on improving the investment climate and providing public goods-such as research and extension services-to improve agricultural productivity in rural areas. Participants also stressed the role that the private sector could play in rural development. There was also consensus on the imperative to enact laws for land use policy in order to foster increased private sector initiatives. 16. Improving incomes also means the need to generate more quality jobs in rural and urban areas. Some participants noted the high rate of underemployment and the high share of informal sector work. The imperative of stimulating off-farm employment in rural areas was also recognized as a key pathway out of poverty. The critical role of SMEs in providing job opportunities for the poor was highlighted, as was the need to address constraints to SME, such as access to microfinance for example. Here participants also agreed on the critical need to address policies at the national and local levels that unduly restrict competition and inhibit efficiency, for example in sectors such as transport. Indeed, allowing competition and entry has a dual benefit to the agenda of

9 5 inclusive growth: it increases efficiency and lowers costs, including to Filipino consumers; and it will permit the generation of more economic activity and more jobs. Improving the Human Capital of Filipinos 17. Participants agreed that the dividends of growth must be used to increase investment in the human capital of Filipinos, and particularly the poor. The Government was commended on its increased spending on the social sectors last year and planned higher spending for this year. However, given the low levels and poor outcomes on some MDGs, there was general consensus that further increases in spending are required. Where possible, there is a need to seek out mechanisms that will allow central government to leverage the efforts of local government and the private sector in financing and delivering basic services to citizens. The Forum agreed that there needs to be more focus on lagging indicators, such as maternal mortality and the low school participation rate and high drop out rate, and on lagging regions, such as conflict-affected Mindanao, but also poorer provinces across the country. Some participants stressed that the MDG target on maternal mortality was unlikely to be met. The Government s national education sector reform program (BESRA) and health sector reform program (Fourmula One) are commended in this regard, and the need for future predictable fknding for the social sectors was highlighted. However, the Philippine s high population growth rate increases the challenge of delivering services and creating jobs for all. Indeed, some participants felt that addressing reproductive health, including through enhanced financing, would contribute to national development and inclusive growth. This calls for urgent public action by all levels of government and by development partners. Reducing Risks and Vulnerabilities to Poorer Filipinos 18. Poorer Filipino families are particularly vulnerable to risks and shocks that could permanently throw them into destitution. In addition to the pervasive health and economic risks they face, households also have to contend with the risks of natural disasters, environmental risks, and now o f climate change and high food prices. It was agreed that this calls for the more effective implementation of social protection and risk mitigation strategies. On the current issue of rising food prices, it was agreed that a study group be immediately convened to consider options on how to address recent increases in rice prices as well as medium to long term solutions on food security and agricultural productivity. Critical for implementing social protection and poverty programs for the poor is the establishment of a credible and accurate administrative system o f targeting poor households. In this regard, the household poverty targeting system being developed for the Government s APP conditional cash transfer was seen as an important and welcomed development. Indeed, many participants recognized that the roll-out of the Government s conditional cash transfer program, if carefully implemented, could prove to be the back-bone of a social protection strategy in the Philippines and could develop the basis of a targeting system that could be used nationally, for other programs such as the PhilHealth Indigent subsidy. Enhancing Security by Addressing Conflict in Mindanao and Elsewhere 19. Addressing the insecurity and shocks related to conflict is critical to the agenda of reducing poverty and vulnerability in the Philippines. Not surprisingly, some of the poorest provinces in the country are in conflict-affected areas in Mindanao; and these were the areas that suffered a further increase in poverty according to recently released data. Meanwhile, it was noted that several provinces in Mindanao that were not affected by conflict made progress in poverty reduction. There was an urgent call for all sides to cease the conflict. This was seen to be key to the development effort of the Philippines. Participants agreed that it was imperative for the government and the MILF to continue pursuit of a negotiated settlement of their conflict. The ongoing review of

10 6 the 1996 Peace Agreement with MNLF was seen as a positive development. A reduction in conflict would permit the full development o f regional agricultural and growth potential. Donors agreed to work through a unified strategy and mechanism for conflict-affected areas so that assistance is used effectively during and after the peace process. Development efforts, such as local government peace building efforts and community driven development programs have shown great promise in delivering the much needed basic services in poor and conflict-affected areas. Strengthening the capacity of local government authorities was recognized as critical to peace and development in Mindanao. STRENGTHENING GOVERNANCE 20. Good governance is a foundation for effective management of both economic and social policies that are necessary to make this growth sustainable and inclusive. It underlies all of the action agenda I have summarized so far. The meeting reiterated the importance of increasing government spending in critical areas of infrastructure and social development. The medium-term expenditure framework that the Government has been working to institutionalize has begun to show dividends. Allocations have been increased to priority sectors. 21. Deepening procurement reform is clearly a priority in improving efficiency and accountability in the use of public money. Recent assessment of the procurement law showed that the law substantially meets the standard of international good practice. However, there are concerns about slow and inconsistent implementation and enforcement. Increased use of electronic procurement and consistent application of open competitive bidding methods are among the concrete measures that the Government is pursuing. It is also timely to institutionalize the Government s successful harmonization of procurement documents and manuals with ODA partners through Implementing Rules and Regulations (IRR-B) of the procurement law to specify the regulatory framework for procurement under foreign-assisted projects. This will strengthen the implementation and enforcement of the law, including at the local government level. The development partners expressed their general appreciation for the Government s proposal to engage them in open consultations to work out the details of the IRR-B and reaffirmed their commitment to work with the Government to this end within the framework of the PDF sub working group on procurement. 22. The Government laid out its priority reform agenda for improving expenditure management and the quality of spending. Two important elements of this agenda are, first, deepening results based budgeting through better performance monitoring and the development of internal audit capacities and control systems, and, second, the harmonization of budgeting, accounting and auditing procedures and reporting requirements--by oversight agencies, development partners and LGUs. These measures, combined with streamlined budget release procedures, would complement a more comprehensive strategy to improve budget execution by priority agencies. The increased involvement of civil society in budgetary monitoring is welcome and participants stressed the importance of gender equity in budgeting. Budget transparency is a backbone of expenditure management reforms. The participants noted the importance of greater public disclosure of fiscal data and publication of improved budget reports. 23. The need to control corruption and strengthen the rule of law was mentioned by a number of participants. The Government, including the President, recognized the centrality of these issues to sustainable and inclusive development and reiterated their commitment to intensify the fight against corruption. Participants acknowledged the government s actions against corruption and welcomed the establishment of the Procurement Transparency Group with strong civil society presence. They supported the announcement to create a similar watch-dog body to support better revenue administration. At the same time, civil society groups highlighted the need for vigilance

11 7 against systemic corruption that may escape the existing control mechanisms that are mainly geared to control administrative corruption. A private sector representative suggested that stakeholders in the Philippines could look to raise the bar and work toward progressive governance standards. 24. Strengthening governance at the local level is vital to ensure sustainable growth and improve service delivery. Meeting ever increasing demands for more and better public services requires that LGUs promote and facilitate access to basic services as well as local economic development. In this regard, Government s call for development partners to join forces through a trust fund to support the agenda of local government and decentralization was embraced. While it is essential that capacities be upgraded, mechanisms for encouraging inter-local cooperation must also be strengthened. The meeting identified several key areas for capacity building, including the skills and data required to: monitor the achievement of MDGs, improve the business environment, and develop vital infrastructure networks. The need to further clarify the roles and responsibilities of LGUs vis-a-vis national government agencies and other LGUs was also highlighted and devolution identified as a means to address short-falls in the delivery of services at the local level. It was recognized that incentives for improving the performance of LGUs also play a role in leveraging resources and accelerating growth. Existing survey instruments such as LGPMS and CBMS should evolve reliable systems for monitoring and benchmarking LGU performance. For this, reliable yet simple ways must be found to validate and update the indicators and make them publicly accessible. 25. Promoting citizen participation in governance, especially at the local level is a good way to enhance transparency and limit the scope for corruption. Community-driven development approaches, such as the KALAHI-CIDSS program, have proved effective in targeting the delivery of basic public services to poor communities. It has also strengthened local governance by empowering communities to take the lead through participatory planning, as well as by undertaking the procurement process themselves, reporting all financial transactions in barangay assemblies, and engaging communities in the important work of monitoring the performance of contractors and other service providers - all of which serve to enhance transparency and accountability at the local level. 26. In summary, the Government has laid out clear and credible plans to address the key development challenges. The development partners are here as friends of the Philippines, ready to support the efforts in sustaining and deepening inclusive growth and improving the lives of Filipinos. The working groups have an active agenda ahead of them in the coming year, and I look forward to the PDF in 2009 when we will be able to recognize the fruits of the important actions that we have discussed.

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