Document of The World Bank Group

FOR OFFICIAL USE ONLY

Public Disclosure Authorized Report No. 78286-PH

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT,

INTERNATIONAL FINANCE CORPORATION,

AND

MULTILATERAL INVESTMENT GUARANTEE AGENCY

Public Disclosure Authorized

COUNTRY PARTNERSHIP STRATEGY

FOR

THE REPUBLIC OF THE

FOR THE PERIOD FY2015-2018

Public Disclosure Authorized May 14, 2014

Philippines Country Team, World Bank East Asia and Pacific Region

International Finance Corporation East Asia and Pacific Department

Multilateral Investment Guarantee Agency Public Disclosure Authorized

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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The Last Country Assistance Strategy (CAS) for the Republic of the Philippines was discussed with the Executive Board on April 30, 2009 (Report No. 479216‐PH), and the CAS Progress Report was distributed to the Executive Board on April 20, 2011 (Report No. 61274‐PH).

CURRENCY EQUIVALENTS (Exchange rate effective as of May 1, 2014)

Currency unit: (PHP) US$1 = 44.46

FISCAL YEAR

July 1 – June 30 ACRONYMS AND ABBREVIATIONS

AAA Analytical and Advisory Activities ADB Asian Development Bank APIS Annual Poverty Indicator Survey ARMM Autonomous Region in Muslim ASEAN Association of Southeast Asian Nations AUD Australian Dollar BPLS Business Process and Licensing Simplification BUB Bottom‐Up Budgeting CAS Country Assistance Strategy CAT DDO Catastrophe ‐ Deferred Drawdown Option CCT Conditional Cash Transfer CDD Community Driven Development CPS Country Partnership Strategy CSOs Civil Society Organizations DPL Development Policy Loan DPO Development Policy Operation DRM Disaster Risk Management DSWD Department of Social Welfare and Development EA Engagement Area EITI Extractive Industries Transparency Initiative FDI Foreign Direct Investment FIES Family and Income Expenditure Survey GDP Gross Domestic Product GEF Global Environment Facility GFMIS Government Integrated Financial Management System GHG Greenhouse Gas GOCCs Government‐Owned and Controlled Corporation IBRD International Bank for Reconstruction and Development ICT Information and Communication Technology IFC International Finance Corporation IP Indigenous Peoples JICA Japan International Cooperation Agency KALAHI‐CIDSS Kapit Bisig Laban sa Kahirapan‐Comprehensive Integrated Delivery of Social Services

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LEAPS Learning, Equity and Accountability Program Support LGU Local Government Units LISCOP de Bay Institutional Strengthening and Community Participation Project LNG Liquefied Natural Gas MDGs Millennium Development Goals MIGA Multilateral Investment Guarantee Agency MILF Moro Islamic Liberation Front MSME Micro, Small and Medium Sized Enterprises NAIA Ninoy Aquino International Airport NCDDP National Community Driven Development Program NDHS National Demographic and Health Surveys NEDA National Economic and Development Authority NHTS‐PR National Household Targeting System for Poverty Reduction NGO Nongovernmental Organization NRIMP‐2 National Roads Improvement and Management (APL) Phase 2 NSCB National Statistical Coordination Board OBA Output‐Based Aid PBR Philippine Business Registry PDP Philippine Development Plan PDR Philippine Development Report PEFA Public Expenditure and Financial Accountability PhRED Philippines Renewal Energy Development PIDP Participatory Irrigation Development Project PPP Public‐Private Partnership PRDP Philippine Rural Development Program PSA Philippines Statistics Authority RAS Reimbursable Advisory Services RIGP Regional Infrastructure for Growth project SWDRP Social Welfare and Development Reform Program SME Small and Medium Enterprise TES Tax Expenditure Statement TF Trust Fund UACS Unified Account Control Structure UHC Universal Health Coverage USD US Dollar WBG World Bank Group WBI World Bank Institute WDI World Development Indicators WDR World Development Report

World Bank IFC MIGA Vice President Axel van Trotsenburg Karin Finkelston Michel Wormser Country Director/Resident Representative Motoo Konishi Jesse Ang ‐ Task Team Leader Kathryn Hollifield Catherine Martin Paul Barbour

iv Table of Contents Executive Summary ...... vi Part I ‐ Introduction ...... 1 Part II ‐ Country Context and Challenges ...... 1 A. Poverty ...... 1 B. Other Social Indicators ...... 7 C. Economic Context ...... 8 D. Political Context ...... 12 E. The Government’s Development Vision ...... 13 Part III ‐ Lessons from the Current CAS, Client Survey and Multi‐stakeholder Consultations ...... 14 A. Country Assistance Strategy (CAS) Completion Report ...... 14 B. Feedback and Dialogue Mechanisms ...... 15 Part IV ‐ The New World Bank Group Country Partnership Strategy FY15‐FY18 ...... 15 A. CPS Goals, Analytic Underpinning and Structure ...... 15 B. Criteria for Selectivity of Bank Group Intervention ...... 16 C. Other Key Principles of WBG Engagement ...... 19 D. Engagement Areas and Strategic Outcomes...... 21 E. Program Implementation and Management ...... 32 F. Monitoring Results ...... 36 G. Managing Risks ...... 37 Attachments ...... 39 Attachment 1: Indicative IBRD AAA and IFC Advisory Services Program FY15‐FY18 ...... 39 Attachment 2: The Repulic of the Philippines Country Partnership Strategy Results Matrix ...... 45 Annexes ...... 55 Annex 1: Mapping for Results in the Philippines ...... 56 Annex 2: The Republic of the Philippines ‐ Progress towards the MDGs ...... 61 Annex 3: The Republic of the Philippines CAS FY10‐13 Completion Report ...... 64 Annex 4: World Bank FY13 Client Survey and CPS Multi‐Stakeholder Consultations...... 118 Annex 5: IFC‐IBRD Collaboration in the Philippines ...... 125 Annex 6: The World Bank Institute Contribution to Philippines CPS: FY15‐FY18 ...... 127 Annex 7: Partnership ...... 128 Annex 8: Country Gender Plan – Mainstreaming Gender ...... 133 Annex 9: Country at a Glance...... 135 Annex 10: Philippines Social Indicators ...... 137 Annex 11: Philippines Key Economic Indicators...... 138 Annex 12: Philippines Operations Portfolio (IBRD/IDA and Grants) ...... 139 Annex 13: IFC: Committed and Disbursed Outstanding Investment Portfolio ...... 140 Annex 14: Map of the Philippines ...... 141

Boxes Box 1: One World Bank Group in Action ...... 20 Box 2: World Bank Group Support in the Wake of Typhoon Yolanda ...... 21 Box 3: Australia‐World Bank Philippines Development Trust Fund ...... 34

Tables Table 1: Philippine Poverty Rates ‐ National Poverty Line ...... 2 Table 2: Philippine Poverty Rates ‐ International Poverty Lines ...... 2 Table 3: IBRD Lending ...... 33

Figures Figure 1: Poverty Rates ...... 3 Figure 2: Poverty Density ...... 3 Figure 3: Poverty Status 2003, 2006, and 2009 ...... 4 Figure 4: Mean Income Relative to Poverty Line 2003‐2009 ...... 4 Figure 5: Number of People Affected by Natural Disasters 2012 ...... 4 Figure 6: Top Five Disasters in the Philippines in 2012 ...... 4 Figure 7: National return period losses normalized by percentage of GDP, for all modelled disasters ...... 5 Figure 8: Poverty Rates (%) in Ten Poorest Provinces vs. National Average 2009 ...... 5 Figure 9: GDP Growth (%) ...... 8 Figure 10: East Asia Pacific and Philippine Growth ...... 8 Figure 11: Sector Growth ...... 9 Figure 12: Sector Labor Productivity ...... 9 Figure 13: Sector share to GDP ...... 10 Figure 14: Employment share by sector ...... 10 Figure 15: Gross Fixed Capital Formation ...... 11 Figure 16: FDI Flows as a Percent of GDP ...... 11 Figure 17: The Philippines CPS Results Chain ...... 17 Figure 18: IBRD Portfolio ...... 35

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The Republic of the Philippines COUNTRY PARTNERSHIP STRATEGY (FY15‐18) Executive Summary Since taking office in 2010, the Government of the Philippines has embarked on an ambitious plan to bring down poverty and improve the lives of the poorest segments of the population. The Philippines Country Partnership Strategy (CPS) FY15‐18 supports the government’s plan to promote inclusive economic growth that creates more and better jobs and reduces poverty. As such, the CPS is fully aligned with the World Bank Group (WBG) goals of ending poverty and boosting shared prosperity. The CPS includes an analysis of how growth patterns and underlying government policies have shaped the country’s development record, notably the limited poverty reduction despite significant economic growth. This CPS will support structural reforms needed to reverse long‐standing policy distortions – food security, land reform, competition, labor market and business climate ‐ which have undermined the creation of more and better jobs and the translation of growth into poverty reduction. High economic growth rates and a government committed to inclusive growth present a valuable opportunity for a new growth path. The WBG will deliver a results‐based program with a selective and integrated package of strategic, analytical, diagnostic and technical assistance services, programs and investment lending. Country Context and Challenges According to the national poverty line, poverty affects roughly 25% of the population. Many live just above the poverty line, cycling in and out of poverty due to high vulnerability to climatic, disaster, financial and price shocks. Last year alone, a magnitude 7.2 earthquake and a devastating Typhoon (international name ) caused major damage and a significant increase in poverty levels in affected areas. Three out of four poor Filipinos live in rural areas and most of them depend on agriculture. Poor Filipinos belong to households with larger families, have more young‐ and old‐age dependents, and have less access to basic infrastructure and services. Also, there is a strong nexus between poverty and violent conflict: the conflict‐affected Autonomous Region in Muslim Mindanao (ARMM) is the poorest region with a poverty incidence of 52.9%. Strong fundamentals have enabled the Philippines to record respectable growth in recent years, despite the global slowdown. The rapid growth of remittances has also contributed to the economy’s stability. The country has a strong export sector, a more liberal investment regime, growing transportation and communication infrastructure, and globally competitive entrepreneurial and managerial talents. The country can sustain high growth in globally dynamic sectors, such as electronics and business process outsourcing. Despite high economic growth, extreme poverty did not significantly decline over the decade through 2012. Extreme poverty, measured as the share of population living under $1.25‐a‐day, was estimated at 19.2% in 2012 compared to 21.6% in 2003. At the same time, while the mean per capita consumption of the bottom 40% grew faster than the total population (between 2006 and 2009), this segment still lives below $2‐a‐day. Data and methodological issues raise questions about the reliability of poverty statistics. Beyond data issues, the limited poverty reduction experienced over the past decade can be explained by high population growth among the poor; low factor productivity (particularly in agriculture and services); frequent and severe natural disasters; and persistent conflicts in parts of the country. Recent preliminary data for the first semester of 2013 shows a 3 percentage points decline in the national poverty rate compared to the same period in 2012, which may well reflect the positive impact of scaled up social protection programs. Under the CPS, the Bank will undertake further analytic and methodological work to better understand poverty trends and their determinants.

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The Philippine Development Report 2013 (PDR): Creating More and Better Jobs concluded that longstanding policy distortions (i.e. in labor markets, land, agriculture) have slowed long term growth in agriculture and manufacturing. Instead of rising agricultural productivity paving the way for the development of a manufacturing sector, the converse has taken place. Agricultural productivity has remained depressed, manufacturing has failed to grow sustainably, and a low‐productivity, low‐skill services sector has emerged as the dominant sector of the economy. This growth pattern has failed to provide good jobs to majority of Filipinos, has led to a substantial outmigration of many of the country’s best and brightest people, and has failed to turn strong growth into poverty reduction. In the coming years the jobs challenge facing the Philippines will remain formidable. Good jobs ‐ jobs (or economic opportunities) that raise real wages and bring people out of poverty ‐ need to be provided to about 10 million Filipinos who were either unemployed (3 million) or underemployed (7 million) in 2012, and to about 1.15 million potential entrants to the labor force every year from 2013 to 2016. In total, approximately 14.6 million jobs will need to be created through 2016. Government’s Development Vision President Benigno S. Aquino came into power in June 2010, winning with a large margin, on a platform focusing on good governance, anti‐corruption and poverty reduction. He then entered into a “Social Contract with the Filipino People” based on: transformational leadership, economy, government service, gender equality, peace and order, and the environment. After nearly four years in office, the government has made progress on the reallocation of resources to reform programs in health, education and social protection and increase budget transparency. Prospects are improving for sustained peace and development in Mindanao. The Social Contract is reflected in the 2011‐2016 Philippine Development Plan (PDP) with its theme of inclusive growth. In April 2014, the government issued the 2011‐2016 PDP Midterm Update. The midterm highlights the country’s robust economic performance, strong fiscal space and unprecedented level of international confidence. It also outlines remaining challenges, including slow implementation of vital infrastructure projects, continued high cost of doing business, and evidence that the benefits of growth have not turned into greater poverty reduction. WBG Program and Development Solutions In support of the PDP, and consistent with the WBG twin goals, the CPS for FY15‐18 aims to promote inclusive growth, reduce poverty and support shared prosperity. Selectivity. In line with these goals, the CPS establishes three criteria for selectivity of WBG interventions: Focus on Poverty and Shared Prosperity; Transformative Engagements; and Convergence/Multi‐Sector Solutions. The WBG will assess all activities through the lens of inclusive growth, poverty reduction and shared prosperity, utilizing diagnostics to assess the impact of interventions on the poor and on the bottom 40%. The WBG will evaluate all activities for a transformational value such as changing behavior and incentives that alter outcomes, a demonstration effect, and/or a comparative advantage for the WBG. The WBG will support the government’s strategy of convergence, bringing together teams to break down sector silos. In this context, the Bank will continue to move away from a sector focus with standalone projects/programs, to programmatic/multi‐ sectoral approaches.

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Engagement areas. The CPS is organized in five engagement areas: 1. Transparent and accountable governance: strengthen public finances, fiscal transparency and financial accountability; strengthen public sector institutions; and strengthen demand‐side pressure for government accountability. 2. Empowerment of the poor and vulnerable: improve poverty measurement and socio‐economic data systems; improve health outcomes; improve quality of basic education and access for the vulnerable; and strengthen social safety nets. 3. Rapid, inclusive and sustained economic growth: strengthen economic policy, support private sector development, improve the investment climate, including greater access to finance; and increase economic growth, productivity, and jobs in rural areas. 4. Resilience to climate change, environment, and disaster risk management: increase physical and financial resilience to natural disaster and climate change impacts and improve natural resource management and sustainable development. 5. Peace, institution building, and social and economic opportunity: The WBG recognizes the window of opportunity afforded by recent progress with the peace process and will support social and economic development in conflict‐affected regions. The WBG will scale up efforts to increase trust within communities and between citizens and the state in conflict areas and develop and implement a “Peace Dividend” program for Mindanao/Bangsamoro. Working as “One WBG”. The CPS program aims to fully leverage the resources and expertise of the whole WBG (IBRD, IFC and MIGA), particularly to mobilize private sector investment and support job creation. The WBG will focus on opportunities for transformational engagements, with joint activities planned in agri‐business, trade logistics, financial sector, and infrastructure/Public Private Partnerships (PPPs). The WBG will deliver a focused, selective and integrated package of support, involving analytic/advisory and financial services. In non‐lending support, the WBG will support integrated analytical and advisory assistance (AAA) for each engagement area. The majority of new IBRD financing will be for development policy operations (DPO) and Program‐for‐Results financing. The Bank will no longer support single agency/single sector investment projects, unless as part of an integrated, multi‐sectoral program. The indicative lending program for FY15‐FY18 is expected to fall within the range of $600 million to $1 billion per year, averaging approximately $800 million per year, with firm commitments through the end of President Aquino’s term (to 2016). Trust funds (about 5% of the total portfolio) will continue to be fully integrated into the Bank program, with a sharper focus on high priority, strategic areas. The IFC will continue to support private sector development, access to finance, rural and “green” investment, and promote inclusive urban growth. The IFC is targeting to commit $250‐300 million in investments in the next couple of years. MIGA currently has no exposure in the Philippines, but will continue to explore possibilities for engagement in infrastructure. Risks and Mitigating Factors The proposed CPS will face several risks that will need to be mitigated. With presidential elections in 2016, the government will need to navigate between concrete results on the ground and steady implementation of the longer‐term reform agenda. The Bank will use the opportunity of the CPS Progress Report (summer 2016) to review and adjust the CPS program. The government’s institutional and governance reform objectives are complex and require a medium‐ to longer‐term implementation horizon. The WBG will place a strong emphasis on building constituencies for reform, supporting

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stronger client participation, “learning by doing,” and developing institutional capacity. Despite the encouraging progress on the peace process in Mindanao, political challenges remain and the security environment remains volatile. As requested by the Government, the WBG will continue to accompany this process, providing basic social services, livelihood and local institution building, and will be ready to scale‐up support as the peace process progresses. To address program delivery risks, the Bank will support better alignment of projects and programs with government priorities. The Bank has fully mainstreamed all decision making relative to the trust fund portfolio into the overall IBRD work program decision making process. The recent introduction of Reimbursable Advisory Services (RAS) will also help to reduce reliance on trust funds and augment the amount of AAA that can be funded through internal Bank resources.

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The Republic of the Philippines COUNTRY PARTNERSHIP STRATEGY (FY15‐18) Part I ‐ Introduction 1. High economic growth rates and a government committed to inclusive growth provide the Philippines with a valuable opportunity for a new growth path that creates more and better jobs and reduces poverty. The government is looking to the World Bank Group (WBG) to help meet its development challenges by sharing international experience to effect lasting improvements. In response, the WBG will deliver a focused, selective and integrated package of strategic, analytical, diagnostic and technical assistance services, programs and investment lending. 2. The Philippines Country Partnership Strategy (CPS) covers FY15‐18 and is fully aligned with the goals of the Government’s Philippine Development Plan (2011‐2016; PDP) and the Midterm Update (2014). Accordingly, the overarching goals of the CPS are to promote inclusive growth, reduce poverty, and support shared prosperity, which are directly linked to the WBG’s twin goals of ending extreme poverty and promoting shared prosperity. The new CPS is a joint World Bank, International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) strategy. 3. The analytical underpinning of the CPS is the Philippine Development Report 2013 (PDR): Creating More and Better Jobs,1 which is based on findings from prior PDRs, notably the PDR 2011: Generating Inclusive Growth to Uplift the Poor. The 2013 PDR analyzes how growth patterns and underlying government policies in the Philippines have shaped the country’s development record. The new CPS is aligned with the report’s conclusions and will support the structural reforms needed to reverse the decades of policies that have undermined the creation of more and better jobs and facilitate the transformation of growth into poverty reduction. 4. This CPS has four main parts. After the introduction (Part I), Part II summarizes the country context and constraints related to poverty and income distribution patterns, progress on social indicators, the economic and political context, and the government’s development vision of inclusive growth. Part III presents an evaluation of the effectiveness and lessons from the current Country Assistance Strategy FY10‐13 and describes the inputs into the preparation of the new CPS. The new partnership strategy is presented with program selectivity criteria and engagement areas. Finally, Part IV presents the approach for implementing the CPS with arrangements for monitoring results and risk. Part II ‐ Country Context and Challenges A. Poverty 5. High economic growth in the Philippines over the last decade has not yet translated into notable poverty reduction. According to the official poverty estimates, which use a national poverty line as a benchmark, income poverty has remained almost unchanged since 2003 at around 25% (equivalent to about 24 million Filipinos).. Similar to the overall poverty, the food poverty is high and has

1 The Philippine Development Report 2013 (PDR): Creating More and Better Jobs is a consensus report reflecting the collective wisdom of the country’s stakeholders based on extensive consultations that shaped the report’s analysis and recommendations with over 300 people from government, business, labor, informal sector, academe, and civil society. All WBG sectors contributed, with IFC providing vital inputs in the area of investment climate. The report also leveraged a number of international experiences to show that reforms, while difficult, are needed before a country can make growth more inclusive. The PDR is available at: http://www.worldbank.org/en/country/philippines/publication/philippine‐development‐report‐2013‐creating‐more‐ and‐better‐jobs.

been slow to decline. In 2012, the incidence of food poverty was estimated at 10.4% of the population, suggesting that about 10 million people did not to have sufficient income to meet their basic food requirements.2 6. Recent preliminary data shows that poverty declined in the first half of 2013. The latest official poverty statistics show a 3 percentage point decline in the national poverty rate between the first semesters of 2012 and 2013, from 27.9 % to 24.9 %. The percentage of food poor Filipinos also declined from 13.4% to 10.7% in the same period. This decline may well reflect the impact of significant recent Government efforts to expand economic opportunities and social programs.3 Table 1: Philippine Poverty Rates ‐ National Poverty Line (% of population) 1991 2003 2006 2009 2012 2013 Poverty rate full year 34.4 24.9 26.6 26.3 25.2 ‐ 1st semester ‐ ‐ 28.8 28.6 27.9 24.9 Food poverty full year 17.6 11.1 12.0 10.9 10.4 ‐ 1st semester ‐ ‐ 14.2 12.3 13.4 10.7 7. The poverty estimates at the international poverty lines show a modest decline between 2003 and 2012. The share of Filipinos with per capita consumption expenditure below the international poverty line of PPP $1.25/day, declined modestly from 22.6% in 2006 to 19.2% in 2012. The share of Filipinos who lived below PPP $2.00/day also declined from 45% in 2006 to 42.2% in 2012. While the mean per‐capita consumption of the bottom 40% grew faster than the total population between 2006 and 2009 (3.2% versus 1.5 % annually), this group is still very poor living below PPP $2/day.4 Table 2: Philippine Poverty Rates ‐ International Poverty Lines 2003 2006 2009 2012 $1.25 a day poverty5 Headcount (%) 21.6 22.6 18.4 19.2 Poverty gap (%) 5.4 5.5 3.7 4.1 $2 a day poverty Headcount (%) 43.4 45.0 41.5 42.2 Poverty gap (%) 15.8 16.3 13.8 14.4 Gini index (%) ‐ consumption 44.0 44.1 43.0 43.0 8. Inequality has also declined modestly over the past decade and remains relatively high. In 2012, inequality in income distribution as measured by Gini coefficient was 47.3, only slightly lower than in 2003 when it was 48.9. Inequality in consumption expenditure distribution is somewhat lower – the Gini index was 43 in 2012, versus 44 in 2003. Both Gini indices put the Philippines among the countries with the highest inequality in the region. 9. Three out of four poor Filipinos live in rural areas and most of them depend on agriculture. Poverty in rural areas (39.4%) is significantly higher than the national average (26.5%) and more than

2 Unless otherwise indicated, poverty estimates presented here are based on the Family Income and Expenditure Survey (FIES) 2009. Source: Philippine National Statistics Authority, National Statistical Coordination Board, 2014 (www.nscb.gov.ph). The official poverty estimates in the Philippines use income as welfare aggregate. Preliminary estimates of poverty at international poverty lines are based on FIES 2012 and were calculated by the World Bank staff. 3 The 2012 FIES was released by the Philippine Statistics Authority in late March 2014. A full year of APIS 2013 data is expected to be released later this year. The Bank will use these date sets for the analysis of poverty and shared prosperity. 4 Both have increased at $1.25 to 19.23 and at $2.00 to 42.2%, but these changes are not statistically significant. 5 Preliminary estimates based on 2003‐2012 FIES and using the World Bank povcal method and PPP conversion factor. These estimates use consumption expenditure as welfare aggregate.

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three times that in urban areas (13.2%). The poverty gap and severity in rural areas (11.2%) is also four times higher than in urban areas (3.1%). While less than a quarter of the population derive most of their income from agriculture, agricultural households—those who depend mainly on income from agricultural‐related activities—account for half of the country’s poor. Annex 1 provides additional poverty maps, overlaid with selected Bank beneficiary and/or project data. Figure 1: Poverty Rates Figure 2: Poverty Density – 000’s of People

10. Poor Filipinos belong to households with larger families, have more young‐ and old‐ age dependents, and have less access to basic infrastructure: Out of Out of 100 Out of 100 100 POOR Filipino’s in the Filipinos… Filipinos… bottom 40% 51 live in rural areas 75 74 40 belong to households whose head works in 66 62 agriculture 51 belong to a household with more than five 73 66 members 5 average household size 6 6 28 dependency ratio (> 15 only) 43 39 14 do not have access to electricity 37 31 47 do not have their own water source 77 73 8 do not have any toilet facility 20 17 Source of basic data: Family Income and Expenditure Survey (FIES) 2009.

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11. At the same time, urban poverty has been increasing in recent years. The urban poverty incidence increased from 11.3% in 2003 to 13.2% in 2009. With no or low paying jobs, migrants are not able to afford decent housing and Philippine cities have one of the highest proportions of informal settlers (about 30 percent reside in Metro ). 12. Many Filipinos live just above the poverty line, cycling in and out of poverty due to high vulnerability to climatic, disaster, financial and price shocks. A 20% increase in the poverty line following a major food shock would increase the poverty incidence by over 9%. Between 2003 and 2009, 44% of the population was poor at least once, one in three Filipinos were persistently poor, and two out of three households moved in and out of poverty. About 90% of the transitory poor have incomes hovering near the poverty line. Figure 3: Poverty Status 2003, 2006, and 2009 Figure 4: Mean Income Relative to Poverty Line 2003‐ 2009 60 54.1 50 Transitory POOR 40 34.0 poor NEVER AT

(%) 30 POOR 66% LEAST 20 56% ONCE 9.2 Chronic Share 10 1.9 0.5 44% poor 0.2 0.1 0.2 34% 0

13. As a means of coping with such shocks, the poor are plunged into deeper levels of indebtedness to make up for lost livelihoods and income. They reduce spending for health, education and other basic needs, including decreased food intake. The limited resources that are left are diverted to meet the most basic needs, constraining the ability to restore pre‐shock incomes and sources of livelihood. These events also push victims, who previously were not poor, into poverty. Disaster impacts also tend to differ between men and women: the mortality rates for women are generally higher than those for men as women are less likely to know how to swim and tend to step in to protect children and the elderly.6 Figure 5: Number of People Affected by Figure 6: Top Five Disasters in the Philippines in 2012 Natural Disasters 2012 (million) (by no. of affected population)

China 43.1 EARTH ARMED Philippines 12.5 QUAKE, CONFLICT, 292,637 118,314 FIRE, 52,349 Nigeria TROPICAL 7 CYCLONE, Pakistan 5.1 3,847,929 India 4.3 Kenya 4 Korea Dem Rep 3.3 FLOOD, 7,827,951 Sudan 3.3 Somalia 3 Chad 2.2 Source: Citizens’ Disaster Response Center , 2012 Philippine Disaster Report

6 WB Working Report No 65833: “Making women's voices count addressing gender issues in disaster risk management in East Asia and the Pacific”, November 28, 2011.

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14. The year 2013 was a devastating year for the Philippines: a significant earthquake then super‐ Typhoon Yolanda (international name Typhoon Haiyan) caused major damage and a significant increase in poverty levels in affected areas. On October 15, 2013, the Central region experienced a magnitude 7.2 earthquake that affected 3.2 million people, caused 223 casualties, displaced over 355,000 people, and damaged over 69,000 homes. In November 2013, Yolanda, a category 5 typhoon with winds speeds over 300 km per hour, struck central Philippines, displacing over four million people, with over 6,200 reported fatalities and almost 1,800 people still missing.7 Over 1.1 million houses were damaged and half of these were totally destroyed. The immediate impact of Yolanda on poverty was severe. Estimates are that in the Western, Central, and Eastern Visayas regions, where the pre‐typhoon poverty rates were significantly above the national average, an additional 2.3 million people (half a million households) were pushed into poverty in the worst affected areas. 15. Increased vulnerability to natural Figure 7: National return period losses normalized by disasters has become “the new normal”. The percentage of GDP, for all modelled disasters Philippines is expected to incur (on a long‐term average basis) about $4.6 billion per year in damage to assets due to earthquake ground shaking, tropical cyclone‐induced wind and precipitation, and non‐tropical cyclone‐induced precipitation. In the next 25 years, the Philippines has a 40% chance of experiencing a loss of more than $18.8 billion and casualties greater than 70,000 people, and a 10% chance of experiencing a loss of more than $44.8 billion and casualties greater than 95,000 people.8 16. There is also a strong nexus between Figure 8: Poverty Rates (%) in Ten Poorest Provinces poverty and violent conflict in the Philippines. In vs. National Average 2009 parts of the country where levels of conflict are high, 80.0 70.0 poverty is severe. The conflict‐affected Autonomous 60.0 50.0 Region in Muslim Mindanao (ARMM) is the poorest 40.0 region in the country, with a poverty incidence of 30.0 20.0 52.9% against the national average of 25.2%. The ten 10.0 poorest provinces in the country are considered 0.0 either conflict‐affected or vulnerable to conflict.

17. There is some improvement evident in other indicators of poverty. Between 2003 and 2009, the bottom 40% became more educated as reflected by the gradually increasing share of their household heads entering and graduating from high school. The share of those in the bottom 40% who are employed in the industry and services sectors also increased, moving away from the seasonality of agricultural employment. Consequently, they have become less dependent on agricultural incomes and

7 Source: Government of the Philippines, May 5, 2014. www.gov.ph/crisis‐response/updates‐typhoon‐yolanda/. 8 Source: The Philippines Catastrophe Risk Profile; AIR/ADPC on behalf of DOF‐IFG, 2014. This analysis takes into account a 10,000‐year catalogue of possible events to provide a more robust quantification of disaster risks in comparisons to short term historical records.

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informal work, as also reflected by a declining share of households who obtain majority of their incomes from agriculture‐related activities and the increasing share of households who shift from informal employment towards wage employment. Some changes are also seen in the living conditions of the bottom 40% as more of them now build their homes using strong materials and have direct access to clean water and sanitation. The National Demographic and Health Surveys (NDHS) of 2003 and 2008 also show that health indicators of those at the Bottom 40 improved together with the rest of the population. 18. The government has revised the original target to halve the official poverty rate from 34.4% in 1991 to 17.2% by 2015, to between 18% and 20% by 2016. This change takes into consideration the slow response of poverty to economic growth and the setbacks in 2013 due to the impact of disasters. With 25.2% of the population in poverty in 2012, achieving this goal would require reducing poverty by 5 to 7 percentage points in the next three years. To achieve poverty reduction from 19.23% in 2012 to 15.4% by 2015, based on the rate of extreme poverty measured by using the poverty line of PPP$1.25‐a‐ day, will require an average annual 1.3 percentage point decline. While the latest poverty statistics for the first semester of 2013 looks promising, achieving either target (national poverty rate or the poverty line of PPP$1.25‐a‐day) will require additional efforts, particularly in areas with high poverty incidence. 19. Relative to other countries in the Region, the Philippines has lagged behind in poverty reduction. In terms of achieving the Mil