The Philippines is firmly on track to achieve the status of an upper-middle-income country in the next few years, after notching up high rates of economic growth and improved development outcomes over the past decade. This achievement—a strategic objective of the Philippine government—is a major milestone for a country that in the past often struggled to compete with its high-performing neighbors in East Asia.

The World Bank Group made a substantial contribution to this improved economic performance by supporting the Philippine government in strengthening macroeconomic management and in improving public sector governance at both the national and local levels, according to IEG’s recent evaluation assessing the development effectiveness of the World Bank Group program in the Philippines 2009–2018.

Nevertheless, the country still faces several fundamental challenges: high inequality, still-high levels of poverty and vulnerability, a private sector dominated by a few large conglomerates, and weak capacity at the local government level. The weight of the elites in the political arena is both a cause of many of these problems and a constraint to addressing them.

Where World Bank Group support is showing results 

Improved macroeconomic management by the Philippine government. The World Bank Group played a role in improvements in macroeconomic management, progress in tax collection, better public procurement, and more efficient public spending. Partnerships with key government agencies at the technical level resulted in more effective delivery of the Bank Group’s program and helped sustain policy dialogue during periods of major political transitions. The Bank Group’s assistance with policy advocacy and communications to help the government build pro-reform coalitions was critical for the success of politically sensitive reforms. In these cases, the Bank Group’s communications and other implementation support effectively complemented its more traditional technical analysis and policy advice.  A particularly important Bank Group contribution, which illustrated the potential for using revenues from additional “sin taxes” on alcohol and tobacco, financedexpanded support for the poor by the national health insurance provider.  

Higher incomes and productivity, better local governance in rural areas. The nationwide Philippines Rural Development Project was born out of the success of a similar regional venture, the Mindanao Rural Development Project. The larger project is ongoing, but already there is clear evidence of progress in its key aspects, including rural incomes and agricultural productivity. In addition—and  unexpectedly—the project has made progress in local governance. The venture helped establish a transparent and effective platform at the local level to include different stakeholders in discussions about local development issues. The project partnered with local governments and the private sector, and it improved participating provincial governments’ capacity to plan for and support development of local infrastructure such as farm-to-market rural access roads and agricultural value chains.

Better local capacity, stability, and inclusion in conflict-affected areas. The World Bank Group contributed to peace building on the island of Mindanao in the south of the Philippines, which has had a long history of conflict with various armed groups. The Bank Group improved social cohesion among different groups and worked with different parties to the long conflict—including indigenous peoples and women, who are often marginalized from decision-making processes. This participatory approach built trust in the Bank Group-supported activities. The activities helped build confidence in the current normalization process and developed and strengthened the capacity of the Bangsamoro Development Agency (BDA), the development arm of the Moro Islamic Liberation Front, a former rebel group. Local stakeholders jointly decided the type of intervention and, with the help of the BDA, designed and implemented the small projects within the affected communities.

The way forward

The challenge for the World Bank Group going forward is to build on previous successful engagements to achieve results that go beyond growth numbers. The IEG report suggests the following:

Improving public sector governance. While many important fundamentals are already in place and many achievements appear to be sustainable, the reform agenda is unfinished. The World Bank Group could leverage its close partnerships with many government agencies to revamp engagement on governance and continue the momentum for reform.

Filling the missing middle. Helping to grow the sector of small and medium enterprises in the Philippines will contribute to addressing the problem of the “missing middle” in its private sector and bridging the huge inequality gap. In this area, the World Bank and International Finance Corporation (IFC), could reinforce each other’s work through better-sequenced and better-coordinated efforts, for example working together on improving the entrepreneurship skills through Bank rural development and IFC’s financial literacy programs.  

Engaging local governments. Some of the biggest challenges in the Philippines are at the local level. Lack of sufficiently strong engagement at the subnational level of government is a major obstacle to an effective assistance program in public services, including education, health, and disaster risk management. The World Bank Group could build on its traction in this area and consider piloting a new model of engagement at the subnational level in some regions where it has a history of partnerships—for example, in some of the conflict-affected areas of Mindanao.

pictured above: Construction workers on scaffolding. Philippines. Photo credit: Edwin Huffman / World Bank