Document of The World Bank Report No: 17176-PH PROJECT APPRAISAL DOCUMENT ONA PROPOSED LOAN IN THE AMOUNT OF US$19 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR AN EARLY CILDHOOD DEVELOPMENT PROJECT February 27, 1998 Health, Nutrition and Population Sector Unit East Asia and Pacific Regional Office CURRENCY EQUIVALENTS (Exchange Rate Effective February, 1998) Currency Unit = Philippine Pesos (P) US$1.00 = () 36 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS ADB Asian Development Bank GDP Gross Domestic Product AGDB Authorized Government Depository Bank GNP Gross National Product ARI Acute Respiratory Infections KAP Knowledge, Attitude and Practice (Surveys) ARMM Autonomous Region of Muslim Mindanao LGU Local Government Unit BHW Barangay Health Worker MDF Municipal Development Fund BLGF Bureau of Local Govermment Finance, DOF MIS Management Information System BNS Barangay Nutritional Scholar MOA Memorandum of Agreement CAS Country Assistance Strategy NCB National Competitive Bidding CARI Control of Acute Respiratory infections NEDA National Economic and Development Authority CBA Cost Benefit Analysis NG National Government CBRM Community-Based Resource Management NGO Non-Govemmental Organization CDD Control of Diarrheal Disease NNC National. Nutrition Council CEA Cost Effectiveness Analysis NPV Net Present Value CDW Child Development Worker OLS Ordinary Least Squares COA Commission on Audit ORT Oral Rehiydration Therapy CWC Council for the Welfare of Children PBAC Prequalilication Bids and Awards Committee DCM Day Care Mother PEM Protein-Energy Malnutrition DCW Day Care Worker PES Parent Effectiveness Service DECS Department of Education, Culture and Sports PHDP Philippines Health Development Project DILG Department of Interior and Local Government PHRD Population and Human Resources Development DOF Department of Finance PIA Philippines Information Agency DOH Department of Health PMO Project Management Office DSWD Department of Social Welfare and Development PPTA Project Preparation Technical Assistance ECD Early Childhood Development RHM Rural Health Midwife EPI Expanded Program of Immunization SA Special Account ERR Economic Rate of Return SOE Statement of Expenditures ESW Economic and Sector Work SWO Social Welfare Officer FISFAP Financial Information System for Foreign TEEP Third Elementary Education Project Assisted Projects ULHNP Urban Health and Nutrition Project ICB International Competitive Bidding UNICEF United Nations Children's Fund IDF Institutional Development Fund USAID US Agency for International Development IEC Information, Education and Communication WDR World Development Report IP Indigenous Peoples WHO World Health Organization IRA Internal Revenue Allotment WHSMP Women's Health and Safe Motherhood Project IMCI Integrated Management of Child Illness Vice President: Jean-Michel Severino Country Manager/Director: Vinay Bbargava Sector Manager/Director: Maureen Law Task Team Leader/Task Manager: Althea Hill Philippines Early Childhood Development Project TABLE OF CONTENTS Page A. Project Development Objective ..............................................................2 1. Project development objective and key performance indicators ....................................2 B. Strategic Context ..............................................................3 1. Sector-related CAS goal supported by the project .......................................................3 2. Main sector issues and Government strategy ..............................................................3 3. Sector issues to be addressed by the project and strategic choices ................................3 C. Project Description Summary .............. .................................................6 1. Project components ..............................................................6 2. Key policy and institutional reforms supported by the project ................ .....................8 3. Benefits and target population .................... ..........................................9 4. Institutional and implementation arrangements ......................................................... 10 D. Project Rationale ............................................................. 11 1. Project alternatives considered and reasons for rejection .............................1..............I 1 2. Major related projects financed by the Bank and/or other development agencies ........ 14 3. Lessons learned and reflected in proposed project design ........................... ............... 15 4. Indications of borrower commitment and ownership ................................................. 16 5. Value added of Bank support in this project ....................................................... 17 E. Summary Project Analyses ............................................................. 17 1. Economic assessment ............................................................. 17 2. Financial assessment ............................................................. 18 3. Technical assessment ............................................................. 18 4. Institutional assessment ............................................................. 19 5. Social assessment ............................................................. 20 6. Environmental assessment ............................................................. 21 7. Participatory approach ............................................................. 21 F. Sustainability and Risks ............................................................. 22 1. Sustainability ....................................................... 22 3. Possible controversial aspects ....................................................... 24 G. Main Loan Conditions ....................... 24 1. Effectiveness conditions ................ 24 2. Other agreements ................. 24 H. Readiness for Implementation ...................... 28 I. Compliance with Bank Policies ....................... 28 Annexes Annex 1. Project Design Sunmmay .29 Annex 2. Detailed Project Description .36 Annex 3. Estimated Project Costs .42 Annex 4. Economic Analysis ........... 44 Bibliography to Annex 4, Cost-Benefit Analysis .................................... 62 Annex 5 Financial Summary .............................. . ,64 Annex 6 Procurement and Disbursement Arrangements .65 Table A Project Costs by Procurement Arrangements .69 Table Al Consultant Selection Arrangements .70 Table B Thresholds for Procurement Methods and Prior R,eview .71 Table C Allocation of Loan Proceeds .72 Annex 7 Project Processing Budget and Schedule .73 Annex 8 Documents in Project File .74 Annex 9 Statement of Loans and Credits .................... ,, 76 Annex 10 Country at a Glance .78 Maps Map 1 IBRD 29245: Regions and Provinces Covered Under The Project Map 2 IBRD 29418: Location of indigenous Peoples Groups Philippines Early Childhood Development Project Project Appraisal Document East Asia and Pacific Regional Office Health, Nutrition & Population Sector Unit Date: 02/27/98 Task Team Leader/Task Manager: Althea Hill Coumtry Manager/Director: Vinay Bhargava Sector Manager/Director: Maureen Law Project ID: PH-PE-4566 Sector: Pop. Health & Nutrition Program Objective Category: PA, PV Lending Instrument: SIL Program of Targeted [X] Yes [ I No Intervention: Project Financing Data [X1 Loan [ Credit [ Guarantee [ Other [Specify] For Loans/Credits/Others: Amount (US$m/SDRm): US$19 million Proposed terms: [ Multicurrency [xl Single currency, specify Grace period: 5 years [ Standard [] Fixed [xI LIBOR-based Variable Years to maturity: 20 years Commitment fee: .75% Service charge: N.A. Financing plan (US$m): Total Project Cost = US$58.8 Source Local Foreign Total Government 18.1 0.0 18.1 IBRD 11.9 7.1 19.0 ADB 14.3 7.4 21.7 Total 44.3 14.5 58.8 BolTower: Republic of the Philippines Responsible agency: Department of Social Welfare and Development Estimated disbursements (Bank FYlUS$m): 1998 1999 2000 2001 2002 2003 2004 Annual 2.0 3.0 4.0 5.0 3.0 2.0 Cumulative 2.0 5.0 9.0 14.0 17.0 19.0 Project implementation period: 1998-2004; Expected effectiveness date: May, 1998; Expected closing date: 12/31/2004 Page 2 A: Project Development Objective 1. Project development objective and key performance indicators (see Annex 1): The overall aim of the 10-Year National Early Childhood Development (ECD) Program is to contribute to the attainment of human development goals by providing services that ensure survival and promote the physical and mental development of Filipino children, particularly those who are most vulnerable and disadvantaged. A corollary goal is to establish an effective partnership between national and local governments in the provision of ECD services. The ECD project provides technical and financial resources for the first 6 years of the program's operation in three Regions (lRegions VI, VII and XII) and has the same objectives. Achievement of the program/project's overall objective would be measured through regional reductions in childhood mortality and malnutrition, plus regional improvements in school readiness and the coverage and performance of ECD services. Achievemenet of the corollary objective would be measured through the percentage of targeted municipalities in the three Regions who implement ECD investment packages, and an increase in levels of municipal spending on ECD services in the three Regions. Since the targeted municipalities are poor, the percentage implementing ECD packages would also measure success in reaching the most vulnerable and disadvantaged children. Key Performance Indicators (Note: Baseline values of Key Indicators will be verified at Baseline Survey and Target Values re-assessed/determined) Region-Wide Indicators Targeted LGU Indicators (for each project Region separately and an average for (for municipalities/cities in the three project all three weighted by baseline numbers of poor Regions) children in each Region) 1. Reduction by 30% of the under-five mortality rate 7. Increase to 75% in proportion of total children from the baseline value (currently estimated at over aged three to five in targeted municipalities 35 per thousand). attending day-care centers (currently estimated at under 60%). 2. Reduction by 40 % in the proportion of children under six with Grade 2 or 3 wasting from the 8. Establishment of functioning PEM programs baseline value (currently estimated at around 30 %). in 50% of municipalities/cities by 2003. 3. Reduction by 30% in the proportion of children under six with anemia from the baseline value 9. Establishment of active CDWs in 50% of (currently estimated at around 50% among infants). municipalities/cities by 2003. 4. Increase to 90% in proportion of children aged 12- 18 months fully immunized from the baseline value 10. Implementation of ECD sub-projects in 90% of (currently estimated at under 85%/6). targeted municipalities by 2003. 5. Improvement in a combined index of child development (motor and cognitive skills) among children under six (indicator to be developed in baseline study). 6. Increase in completion rate for Grade 1 to 70% of Grade 1 entrants from the baseline value (currently estimated at 5 8%). Page 3 Bt: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project (see Annex 1). CAS document number: 15362 Date of latest CAS discussion: February 15, 1996 Date of latest CAS progress report: March 24, 1998 According to the Philippines Country Assistance Strategy (CAS), discussed by the Executive Directors on February 15, 1996, the Bank Group's ultimate objective in the Philippines is to promote sustainable clevelopment and help achieve a more rapid reduction in poverty. Five specific objectives are laid out in the CAS, namely to: (1) support Government in converting the current economic recovery into sustained growth, vital for poverty reduction; (2) strengthen public sector capacity to implement policies and programs; (3) strengthen infrastructure to enable growth; (4) assist in the design and implementation of rnore effective and efficient mechanisms for poverty alleviation while upgrading the quality of social services available to the poor; (5) support sustainable management of natural resources and protect the environment. As part of the strategy to achieve objective (4), the CAS supports financing of an Early Childhood Development Project, in collaboration with the Asian Development Bank. This project would also contribute to objective (2). It would follow up on the published ECD sector study produced by the Bank and the Asian Development Bank (ADB), "Improving Early Childhood Development: An Integrated Program for the Philippines", which outlines a proposed national ECD strategy and investment program to strengthen the country's current child health, nutrition and pre-school programs. The project also responds to the November 1995 poverty sector report, "Philippines: A Strategy to Fight Poverty ", which restates the vital contribution of human capital development and poverty reduction to high and sustainable economic growth. The poverty sector report recommends increased Government investment in health services, supplementary feeding programs and primar, education (for which pre-schooling is a preparation) in order to improve their quality and access by the poor. Fifteen provinces are identified in the report as the poorest in the country, and hence as needing priority attention; they are Bohol, Cebu, Davao del Sur, Iloilo, Leyte, Masbate, Negros Occidental, Pangasinan, Zamboanga del Norte, Zamboanga del Sur, Cagayan, Negros Oriental, South Cotobato, and two of the four provinces constituting the National Capital Region. The latter two are already covered as regards health and nutrition services under the Urban Health and Nutrition Project. Five of the remaining thirteen are included in the ten target provinces for ECD investment under the project. 2. Main sector issues and Government strategy and 3. Sector issues to be addressed by the project and strategic choices: Nature of the Problem in ECD in Philippines: Investment in human capital and the breaking of the cycle of poverty must begin at the start of life. The effects of childhood disease and even moderate malnutrition on childhood mortality rates are already well-known. Massive research evidence is now accumulating that the health status, physical nutrition, and psychosocial and mental "nutrition" of very young children--even in the womb--exert profound and often irreversible effects on their subsequent physical and mental development (see "Improving Early Childhood Development: An Integrated Program for the Philippines" and "Early Child Development: Investing in the Future ", a general Bank sector study of ECD). Among the most recent examples are the linking of chronic diseases such as coronary heart disease and diabetes to fetal under-nutrition, and the discovery that cognitive stimulation in early childhood is crucial to the development of brain hard-wiring for key intellectual abilities such as reading, mathematics and language-learning. Yet progress in the Philippines in all these areas has lagged behind that of neighbors and comparators, despite an excellent early start, and is worse than it should be given the country's per capita income. For Page 4 example, Thailand and Philippines had similar infant mortality rates in the 1960s, yet Thailand's current rate is only about half as high. China's current under-five mortality rate is lower han current infant (under-one) mortality m Philippines, despite China's much lower per capita income. Today, half of Filipino infants are anemic, as are one-quarter of young children and forty percent of pregnant and lactating women. Other micro-nutrient deficiencies are also common. Around 30 percent of children under age 6 are moderately or severely malnourished by the International Referenice Standard, a higher proportion than in many poorer countries such as Egypt, Kenya, Tanzanma and Zimbabwe; most of the malnutrition is moderate rather than severe, but still sufficient to stunt children permanently and damage their health and cognitive development. Moreover malnutrition rates, though declining, have fallen more slowly than in either other East Asian or the much poorer South Asian countries. The Philippines also perforns worse than all its middle-income neighbors both in primary school completion, at a current rate of 68 percent of primary school entrants graduating, and in school test results. This relatively poor progress in child welfare is due largely to the economic stagnation and under- investment in social welfare programs of the Marcos period, combined with an unchanging and highly inequitable distribution of income and wealth that still is among the worst in low and middle-income Asia. Little was done during that period to establish adequate national child health services, or to implement the intensive community-based nutrition programs which could compensate for limited incomes through nutrition monitoring, education and well-designed and targeted supplementation. The prevalence and depth of poverty in the Philippines are now declining through accelerated economic growth, but social indicators still vary dramatically across the country according to poverty levels, indicating that national development continues to be dragged down by the situation of the poor. The early stages of Devolution further accentuated the disadvantages of the poorest parts of the country through the failure of the Internal Revenue Allocation system to target greater resources to LGUs with higher levels of poverty. Action is needed to redress the stagnation of the past 20 years and the unequal distribution of current revenues, through investment in programs targeted towards the poorest LGUs and poorest families. Much can be done even for poor and disadvantaged children in all areas of ECD, and the returns to such investment are high (see "Improving Early Childhood Development: An Integrated Program for the Philippines" and the World Development Report [WDR] 1993). Child health programs, using basic low- cost and cost-effective interventions such as immunization, oral rehydlration therapy (ORT), diagnosis and correct treatment of acute respiratory infections (ARI), and micro-nutrient supplementation, can dramatically cut childhood death rates and promote physical growth. Nutrition programs with supplements for malnourished children can substantially reduce malnutrition rates and are highly cost- effective; the estimated cost-benefit ratio for the Philippines of imprcved child protein-energy nutrition in terms of health expenditure savings and adult productivity gains is four US dollars gained per one US dollar spent. Good-quality pre-schooling (early education) programs for disadvantaged children, as well as nutritional supplements for the malnourished, have been shown around the world to have long-lasting and highly cost-effective effects on school retention rates, intellectual ability and performance and long termn earnings and welfare; there is even evidence of such effects lasting into the second generation. An evaluation of a US integrated ECD program for inner-city disadvantaged children estimated a long-term cost-benefit ratio of seven US dollars saved per one US dollar spent. All the above programs are affordable for a country of Philippine's level of per capita GDP. The World Development Report, 1993 puts the total cost of a package of primary health and nutrition interventions for the entire population at US$22 per capita in a middle-income country, or 0.3 percent of Philippines' 1991 Gross National Product (GNP). The 1995 ECD sector study estimates total needed spending on ECD programs in Philippines at US$11 per pre-schooler, or about 0.002 percent of Philippines' 1991 GrNP. Current Programs in ECD: Another important factor in deciding on strategies for future investment and development in these sectors is that Govermment-financed child health, nutrition and early education programs are already well-established in the Philippines and enjoy extremely strong political support. Page 5 Child health programs, run by the DOH along standard lines, took off in the late 1980s; the immunization program achieved 90 percent full immunization coverage by 1993, and the Control of Diarrheal Disease (CDD), Control of Acute Respiratory Infections (CARI) and micro-nutrient programs have expanded rapidly and with some early success. Congress and the media closely monitor the performance of EPI in particular, using it as a touchstone of the performance of DOH. Like all primary health care interventions, these services are provided free of charge. Nutrition programs include a variety of community-level interventions managed by the National Nutrition Council, the Department of Social Development and WVVelfare (DSWD) and DOH. They all involve supplementary feeding which has relied mainly on supplies of bulgur wheat and green peas from the US PL480 scheme, plus (in DOH's case) growth monitoring and nutrition education. They have always attracted strong support from local governments and elected officials and are often well publicized. Again, these services are provided free of charge. Food subsidy and home- garden programs also exist. There are two major Early Education programs, both run by DSWD. The first is a network of so-called "Daycare" Centers, which provide two or three hours of early education a day for children aged 4-6 years. This network covers 43 percent of barangays (villages) but lacks vital supplies and adequately trained staff and is thought to be of low quality. The program was established by Congress under an Act which mandates the establishment of at least one center in every barangay and continues to be politically popular and visible. The second is a Parent Effectiveness Service (PES) which trains parents in appropriate parenting skills but has achieved only low coverage and uncertain quality to clate. The community is expected to top up the allowance paid the day-care center worker, but usually contributes very little. For true day care for children of working mothers, there is virtually nothing functioning but the private sector, including a few employer factory-based schemes. Of these programs, the child health program has been relatively successful and still has much potential that could be realized. The others have all achieved some degree of success, though they still require further d3evelopment. However all suffer from chronic underfunding in terms of inadequate equipment, numbers of field-level staff and other operating expenses. This is worsening under the effects of devolution, since LGUs, though generally highly supportive in terms of rhetoric and political commitment, generally do not umderstand the importance of adequate financing for these programs or accord them high budgetary priority. Although precise data are hard to find, because management information systems are deteriorating through lack of LGU commitment and capacity to finance their maintenance, signs of adverse trends are already appearing. For example, immunization rates are said to be falling, food supplementation programs are being halted following the withdrawal by USAID of PL480 supplies, and LGUs are defaulting on funding for vital field health staff who were, or are to be, hired under cost-sharing arrangements in Bank health projects. Upgrading and fine-tuning of these child health, nutrition and early education programs, with heavy targeting of poor and disadvantaged children, appears the best and most cost-effective strategy for putting the Philippines back on track in terms of early child welfare indicators and subsequent educational performance. On the basis of these considerations, plus the established and strong political support for most of the current ECD programns, Government has adopted the overall approach of building on and strengthening existing programs. An outline investment program incorporating this approach was put forward in the ECD sector study, which was prepared by the Bank and the Asian Development Bank at Government request and in full consultation with the concerned agencies. A multi-agency ECD Steering Committee was set up by Government to develop a 10-year national ECD Program (1996-2005) to strengthen ECD programs, led by DOH, with representation from DSWD, DECS, NEDA and the Council for the Welfare of Children. This Committee prepared an initial conceptual proposal for a national ECD investment program on the basis of the sector report's outline. The proposal was approved in May, 1996 by the Cabinet and thereby became an official Government program. The proposed project would support this national investment program. Page 6 C: Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): The ECD project essentially finances implementation of the ECD Ten-Year National Investment Program in three regions for its first six years, or from 1998 through 2004. The project is structured into three components as follows: ~M 0 W~~~~~~~~~~~~~~~~~~l 1i ALg flinn 1. ECD Service Physical 34.9 59.2 10.0 55.2 Delivery a. Program Support for Physical 4.6 25.2 Provincial LGUs b. Financing Facility for Physical 5.4 30.0 MunicipalCity LGU ECD Sub-Projects 2. Support to LGU Institution- 12.3 20.9 5.4 24.4 Sub-Proiects Building a. Communications Institution- 1.3 7.2 Support Building b. Planning, Targeting Institution- 3.7 15.2 & MIS Support Building c. Training Support Institution- 0.4 2.0 Building d. Institutional Institution- -- --- Development Building 3. Research and Policy 3.6 6.6 1.7 9.6 Development a. Pilot Testing of Policy 0.2 1.2 Project Interventions b. Program Innovation Policy --- --- and Policy Development c. Benefit Monitoring Policy 1.5 8.4 and Evaluation Taxes and Duties 1.7 2.9 --- --- Contingencies 6.2 10.5 1.9 10.8 TOTAL PROJECT 58.8 100.0 19.0 100.0 Page 7 Sub-Component 1.A: Program Support for Provincial LGUs. This sub-component consists of five packages, comprising support to all provinces in the three project Regions for five programs, namely the Expanded Program of Immunization (EPI), the Integrated Management of Child Illness (IMCI) Program, the Micronutrient Malnutrition Prevention and Control Program, the Parent Effectiveness Service (PES) Program, and the Grade 1 Early Child Experience/Early Child Development (ECE/ECD) Program. The Expanded Program of Immunization package will supply crucial needed additional inputs to the EPI program, including replacement cold-chain equipment, training of cold-chain technicians in cold-chain mranagement, maintenance and repair, training of primary health care staff in basic EPI skills, and reproduction of EPI IEC materials and monitoring charts. This package would be managed by the Department of Health (DOH). The Integrated Management of Child Illness package will support the initiation in the Philippines of the World Health Organization (WHO)-supported IMCI program, which aims to improve the diagnosis, management and treatment of common childhood conditions such as pneumonia, diarrheal disease, dengue, malaria, tuberculosis, anemia and malnutrition. The package will provide in-service IMCI training for doctors, nurses and midwives, support the integration of IMCI into the curricula of medical, nursing and midwifery schools, and supply delivery and diet kits to improve case-management of conditions affecting the new-born. It would be managed by DOH. I'he Micronutrient Malnutrition Prevention and Control package will prevent, manage and control major micronutrient deficiencies (in iron, iodine and vitamin A) in the Philippines through a mix of direct supplementation, food fortification and deworming of children. The overall strategy is to phase out direct supplementation, except for special high-risk groups such as pregnant women, over the life of the project, and correspondingly promote comprehensive industry-financed fortification of staple foodstuffs (salt, sugar, flour, rice, oil), backed by regular deworming. The project would support interim supplies of iron supplements (the current gap in DOH's micronutrient supplementation program) on a declining basis, weighing scales for infants to identify low-birthweight babies requiring iron supplements, deworming tablets, and the costs of institutional development and social marketing to promote comprehensive food fortification. The package would be managed by DOH. The Parent Effectiveness Service package will upgrade the current PES program through introduction of a Mother and Child book, which provides a permanent record of child growth and development from birth to sixth birthday, and reproduction and distribution of an updated version of a parent's manual on early child clevelopment developed for an earlier project. The package would be managed by DSWD in coordination with DECS, who will incorporate it into its Teacher-Child-Parent program, and DOH Provincial Health Offices, who will incorporate it into its health education program. The Grade 1 ECE/ECD package, which aims to improve the child-readiness of elementary schools through Region-wide introduction of an already pilot-tested enriched Grade 1 cumculum that contains an 8-week "Early Child Experiences"(ECE) module incorporating more innovative and participatory approaches, will support training of teachers in the new curriculum and the reproduction and distribution of training and teaching materials. The project would also provide complementary health and nutrition inputs through iron supplementation and deworming of Grade 1 entrants (see Micronutrient package above). The package would be managed by the Department of Education, Culture and Sport (DECS). Page 8 Sub-Component 1.B: Financing Facility for Municipal/City Local Government Unit (LGU) ECD Sub-Projects. This financing facility, which will operate through the Municipal Development Fund (MDF) will provide matching financing, on a flexible cost-sharing basis geared to LGU income levels but with full funding by LGUs of major recurrent costs, for LGUs who wish to invest in upgrading of their ECD services. LGUs would, with technical support from the project, submit proposals for three-year investment packages for appraisal, and implement them once approved. The facility would cover three Regions, namely Regions VI, VII and XII, containing a majority of the country's poorest children. It would be open to all LGUs in the three regions, but more than 80 percent of the funds available would be reserved for the 10 provinces and 169 cities and municipalities withi the greatest number of needy and at- risk children; these LGUs would be targeted for active recruitment. A region from Mindanao was included as a contribution to Government's new development initiative there. Some new and innovative elements of the investment packages, such as the new protein-energy malnutrition (PEM) control program, would also be pilot-tested in five selected LGUs during the first year of the preject under Component 3 (Research & Development). The generic cost-sharing formula is shown below: LGU Income Class % Grant % Equity 1st Class 40 60 2nd & 3rd Class 60 40 4th to 6th Class 80 20 This sub-component would be managed by the Department of Social Welfare and Development (DSWD). Component 2: Support to Service Delivery This component would provide support to LGUs in implementing theiir investment packages in the areas of communications (advocacy, information, education, communication, for LGU executives, opinion leaders and decision makers, ECD providers and parents), planning, tarlgeting and management information systems (MIS), training and human resource development, and institutional development. Support would be provided at the central, regional, provincial and municipal levels. There would be four sub-components, covering respectively communications, planning/targeting and MIS, training, and strengthening and support of the management capacity of LGUs, the project management structure, and the Council for the Welfare of Children (CWC), which is expected to become the apex agency for the national ECD program in the longer term. This sub-component would be managed by DSWD, in coordination with a mix of agencies and Non-Government Organizations (NGOs), as appropriate. Component 3: Research and Development (R&D) This component would finance R&D activities needed to support effective ECD program/project implementation, including initial piloting of new field-level technical interventions proposed under the project. There would be three sub-components, the first covering piloting of project interventions, the second consisting of unprogrammed financing for research and testing of new and innovative approaches to ECD services, and the third covering monitoring and evaluation of the effectiveness and impact of the project, including baseline and end-project evaluation surveys. This component would be managed by DSWD in coordination with CWC, and a mix of agencies as appropriate. 2. Key policy and institutional reforms supported by the project: The project will support initial implementation in three key Regions of the new Ten-Year National ECD Development Program, and hence key policy and institutional development and reform in existing ECD policies, programs and services. As a part of the Program, it also supports strengthening of LGU capacity Page 9 to manage and implement ECD programs and services, and hence contributes to the long-term development of the post-Devolution structure and performance of social sector programs and services. 3. Benefits and target population: Tlhe ECD program and project would correct past Govenment under-spending in human resource development and poverty alleviation by inproving ECD program design, targeting and performance, and by strengthening institutional capacity in this sector at central and local government level. These upgraded ECD programs would lower childhood mortality rates and burden of disease, and improve the nutrition and cognitive development of children in the Philippines. These outcomes would in turn improve school retention rates and performance and the health and productivity of adults. They would thereby contribute to the building of human capital and reduction of poverty in the Philippines, which together are current constraints on the country's potential fbr sustained long-term economic growth and development. The central-level policy-relevant portion of the project (primarily Component 3, but with spill-over from Component 2 and sub-component L.A) would provide general benefits, through improved ECD policies and service design, for the health, nutrition, cognitive development and primary education of approximately 10 to 11 million pre-school children annually, vith gains concentrated among the approximately 3 to 4 million children living below the poverty level. The Region-wide portion of the project (primarily sub-component 1.A) would directly benefit the healt, nutntion, cognitive development and primary education of approximately 2 million pre-school children annually, through key additional inputs to region-wide ECD programs. The LGU sub-projects supported under sub-component 1.B, which are targeted to poor and needy municipalities and families, are expected to provide upgraded ECD services, and hence direct benefits in the above areas, for a minimum of 1.3 million pre-school children over the life of the project. Program and Project Scope: The ECD programn approved by Cabinet is national in scope. This project finances its initial implementation in three Regions, of which two (VI and VII) contain the largest numbers of disadvantaged children in the coumtry and the third (XII) is located in the disadvantaged island of Mindanao. Some program and project interventions, such as immunization or promotion of industry-based food fortification, must by their very niature be designed to cover the whole community in the three Regions and the entire country respectively. -lowever the program and the project both feature heavy targeting of poor and disadvantaged families and children. A high degree of self-targeting is expected given the nature of the programs themselves, but two types of direct targeting will also be employed in the project. The first is geographical, through selection of poorer provinces, municipalities or barangays for priority financing. The second is targeting of poor families within each geographic area, which will forn part of LGU sub- project planning and implementation. In addition, some interventions such as nutrition supplementation or treatment of diarrhea and respiratory infections would automatically target only children screened as in need of the intervention. Ten provinces are targeted for ECD investment, namely Antique, Bohol, Capiz, Cebu, Guimaras, Iloilo, Lanao del Norte, Negros Occidental, Negros Oriental and North Cotobato. Five of these are included in the list of those identified as the fifteen poorest in the country by the poverty sector report "A Strategy to Fight Poverty" (see Block 2, Section 5). Eight are included in the 30 provinces targeted for upgrading of elemnentary education under the Third Elementary Education Project (TEEP) (see Block 2, section 10), of which six fall under the 11 provinces added to the basic list of Social Reform Agenda provinces for TEEP coverage because of their intense poverty. See Section 8 (Analysis of Alternatives) for further details of the targeting process. Page 10 4. Institutional and implementation arrangements: Implementation period: 1998-2003 Executing agencies: The project has primarily been designed and prepared, and will be implemented, by three agencies, namely the Departments of Health (DOH), Social Welfare and Development (DSWD), and Education, Culture and Sports (DECS). DOH was in charge of preparation from late 1994 through end- 1996, but then handed over to DSWD. DSWD was named by the National Economic and Development Authority (NEDA) as the lead agency for implementation and will be responsible for overall project management. Project coordination: The project will be implemented by DSWD, DOH and DECS under the overall leadership of DSWD. Following the usual pattem of project management in the Govenmment of Philippines, a national project management office (PMO) will be set up within DSWD, located in the Office of the Secretary. It wil be headed by a Project Director who would be an Undersecretary in DSWD. Day-to-day management will be the responsibility of a full-time Project Coordinator, also a DSWD official. There will be four operating units within the PMO, covering respectively: management services (including procurement and disbursement/flows of funds); technical services; financial management services (overseeing the financing facility for LGIJ sub-projects); and research and development, which wil coordinate with CWC on the management of component 3. Staff will be a mix of contractual staff and long-term consultants. DOH and DECS will each organize an internal project coordination unit at national level for the sub-components for which they have management responsibility, and designate a senior member of their regular staff as agency coordinator. These agency coordinators will liaise with the Project Coordinator in the PMO. Regional agency coordinators will likewise be designated in the project regions. A manual of operations is being finalized for the LGU financing facility, entitled "LGU Financing Facility Manual of Operations". Funds for this facility would flow to LGUs through the Municipal Development Fund. A regional PMO will be set up at the DSWD regional office in each of the three Regions (VI, VII and XII), on similar lines to the central PMO but with smaller staff complements. The Assistant Regional Director will serve as Project Coordinator. A regional ECD team, headed by the DSWD Regional Director, will be established, which will be responsible for initial advocacy and negotiations with provincial governors to form an ECD partnership. Each Governor will, at his own cost, set up a small Provincial Project Management Office, and designate a Provincial ECD Action Officer to head it. A provincial ECD team will be established, which will: assist in advocacy and dissemination of information on ECD and the project; solicit targeted municipalities and cities to make use of the LGU financing facility and undertake ECD sub-projects; initiate and supervise the municipal/city sub-project planning process; coordinate a consolidated provincial ECD plan incorporating all municipal/city ECD sub-projects and plans; and assist in administering part of the technical support packages, such as training and IEC, under contract to the regional PMO. Normal provincial-level ECD referral services and techmcal supervision of municipal ECD providers will continue to be provided by the province out of their regular budgets. Each LGU whose proposed sub-project is approved will sign a Sub-project Assistance Agreement with the national PMO. The Sub-project Assistance Agreement will specify the responsibilities and inputs of the Borrower and of the LGU under the project, with the municipality/city undertaking to implement the sub- project as approved, and receiving the appropriate financial and technical support to do so. The mayor will designate a municipal ECD Action Officer and ECD team who will plan and coordinate sub-project implementation. Project oversight (policy guidance, etc.): At central level, the multi-agency ECD Steering Committee will provide oversight and guidance to the project. Under the project, CWC will be strengthened to act as Page 11 apex agency for the national ECD program in the longer terrn, as well as a resource and information/communication center for ECD programming and a partner with the PMO in management of Component 3. At regional level, each of the three project Regions will create a regional ECD team. headed by the DSWD regional director and including the regional directors of DOH, DECS, the National Nutrition Council (NNC), the Philippines Information Agency (PIA), NEDA, DILG and NGO representatives. This regional team will guide the Regional PMO and monitor program and project implementation. There will be similar provincial and municipal ECD teams. Accounting, financial reporting and auditing arrangements: Project expenditures will be recorded using the accounting procedures titled Financial Information System for Foreign Assisted Projects (FISFAP), promulgated by the Commission on Audit (COA). At the end of each calendar year, the Central Project Management Office (CPMO) will consolidate all accounts pertaining to the project, including those submitted by DSWD, DOH, DECS and MDF (representing the LGUs), and then prepare and submit to the COA Auditor consolidated Project Accounts. COA will render an opinion on the consolidated Project Accounts. The Special Accounts and Statements of Expenditures (SOE) of each implementing agency will be audited by the COA according to Government procedures which are acceptable to the Bank. COA will also render a separate opinion on the operation of the Special Accounts and SOEs. The financial management of the project by the implementing agencies will be periodically reviewed by the central PMO as described in Annex 6. All audit reports will be submitted to the Bank within the six months following the end of each calendar year. Monitoring and evaluation arrangements: Evaluation of the project will be carried out primarily through a set of baseline and end-project surveys. This will include a general population-based sample survey of ECD status and services in the three Regions, special nutrition surveys integrated into the National Nutrition Surveys planned for 1998 and 2003, special surveys of ECD-related knowledge, attitudes and practice, and special provincial-level surveys of ethnic groups. Key project indicators are given only indicative baseline and target values in the Project Appraisal Document and the Project Implementation Program, since data for many of the current values are not up-to-date. The primary function of the baseline survey will therefore be to establish up-to-date values for the key project indicators, on which basis the target end-project values will be confirmed or modified as appropriate. At project mid-point, a mid-term survey could repeat portions of the baseline survey if any significant change in indicators is considered likely. The end-project survey will repeat the baseline survey in full, to determine achievement in meeting target values of the key indicators. Service statistics from the implementing agencies will be used where possible to supplement the results of the surveys and to track progress between surveys. In addition, there will be annual hemoglobin and community-based micronutrient monitoring surveys, as well as regular community-based monitoring of interventions for ethnic minorities. Progress in implementation of the project will be monitored through the program/project MIS. This will include: tracking of expenditure and disbursement; contract monitoring to track delivery of contractor outputs; commodities procurement tracking; and monitoring of implementation progress through tracking of consumption of inputs plus a sentinel site reporting system. D: Project Rationale 1. Project alternatives considered and reasons for rejection: Choice of Technology The project will provide early childhood education through home-based programs for children aged 0-3, center-based day care for children aged 3-5, and an 8-week Grade 1 curriculum for 6 year old children. Health and nutrition inputs for children aged 0-6 (supplementary foods, nicronutrient supplements, growth monitoring, immunization, developmental screening, etc.) will be provided by the project in conjunction Page 12 with early childhood education and by referral to primary health care providers. Specifically, the project will provide: (i) children books, learning/manipulative materials, play materials, developmental screening materials, growth charts, weighing scales, parent reference materials, developmental assessment kits, nutrition inputs, and training for new child development workers and day care mothers for home- based ECD services for 0-3 year old children; (ii) construction of new day care centers, upgrading and renovation of existing day care centers, equipment, child books, leamning/manipulative materials, play materials, developmental screening materials, growth charts, weighing scales, parent reference materials, developmental assessment kits, and training for new and existing day care workers for ihe expansion of the existing publicly provided day care program for 3-5 year old children; (iii) teacher materials including pre-school handbooks, readiness test booklets, child books, story telling manuals, songs, games, poems, audio tapes, student materials including sets of blocks and manipulative toys for an 8-week Grade I curriculum, and training of Grade 1 teachers; (iv) mother and child books, manuals for parents of newborns, children books, learning/manipulative materials, play materials, developmental screening materials, growth charts, weighing scales, parent reference materials, and developmental assessment kits, health inputs, and training for new and existing rural health midwives; and (v) mother and child books, manuals for parents of newborns, ancd other parent education materials for parents of children enrolled in day care programs and parents of 0-3 year old children in neighborhood-based parent-child development groups formed by home-based child development workers and day care mothers. Choice of Number of Years of Early Education. The project will provide health, nutrition and early education inputs from birth through an 8-week curriculum in Grade I for 6 year old children. This rationale for this choice is based on evidence from neuroscience research that the optimum development and functioning of the human brain from gestation, at birth and onwards depends largely on the quality of care and interaction that an infant and young child receives from prinmay caregivers. Moreover, there is substantial evidence that programs designed to improve the psychosocial development of children in the first six years of life and that integrate health and nutrition components with early education can significantly affect children's development and their readiness for school. These improvements make a child more likely to attend school, less likely to repeat or drop out and a better performer in school. Choice of Inputs to Improve School Readiness. Readiness for schoo] is defined in terms of the child's activity level (health and nutritional status affecting attendance, attention and concentration), social competencies and psychological preparedness (which affect the ability tD cope with different learning environments), and cognitive abilities, including early literacy, mathematics and thinking skills. Readiness also is reflected in the expectations the family holds for the child which relate also to the support they are ready to provide. The project inputs have been selected to take advantage of the synergistic relationship between health, nutrition, and early education that can positively influence school readiness. For example, in order to sustain the gains from short-term food supplementation and growth monitoring, education for children and parents is required so that the feeding and health practices will be reinforced and internalized. The integration of parent education and nutritional inputs is required for the adoption of practices that improve a child's psychosocial well-being, nutritional status, health, growth and overall well-being. This integration of project inputs will lead to improved school readiness. Page 13 Choice of Home-Based and Center-Based ECD Services. The choice of a home-based early education program for 0-3 year old children is based on the recognition of the large gap in service provision for under-three's, and that center-based programs for 0-3 year olds are not culturally appropriate or viable in the Filipino culture either in urban or rural areas. The absence of a civil works requirement for the home- based approach also contributes to the cost-effectiveness of the project. The project's early education inputs for 3-5 year olds builds on the existing public day care center-based system. Health and nutrition inputs will be administered through the home-based program, the day care center-based program, and through the existing facility-based rural health unit system by health care providers. Choice of Public Versus Private Finiancing Child Health Care Services. Child health care services in the Philippines, including micronutrient and food supplementation, food fortification initiatives, support for national EPI, CARI, and CDD programs, largely has been provided by the public sector. The commercial private sector does not deliver the low-cost preventive, promotive, and selective basic curative types of interventions that are required. The public child health programs provide preventive goods and services (e.g. polio immunization) and cost-effective curative services (e.g. cotrimoxazole for early treatment of CARI) for many contagious diseases. These are mixed public/private health goods that yield both private benefits to the individual and public benefits to the community at large. Without some level of government subsidy, these goods would be consumed at levels below the social optimum. In addition, demand for such services by the poor is weak, due to lack of information and the low priority generally accorded to preventive services. Potential private sector profits from these goods and services are low compared to those from other types of medical treatment, and poor families in remote communities lack access to good quality private providers. NGOs which provide child health services only cover a very small fraction of the national need. The most effective approaches to provision of subsidies for these types of goods worldwide in child health (WDR, 1993) have been publicly funded programs that at the minimum provide coverage for poor and remote populations, incorporate NGO partners to the extent possible, and regulate private providers to conform to national protocols. Child Nutrition. For basic child malnutrition interventions (screening and monitoring child growth, educating families in correct feeding practices, providing low-cost specially-tailored nutritional supplements where necessary), the commercial private sector is very small in the Philippines. The development constraints are similar to those faced by child health. They include low demand, since all but the severest malnutrition is not visible on a day-to-day basis, lack of information of correct nutrition is widespread among poor families, and low profit levels for labor-intensive interventions targeted heavily to the very poor and remote areas. NGO coverage is again small-scale and spotty. Experience around the world indicates that effective child malnutrition approaches must be designed around community-based workers and interventions. They are either financed and managed by Government, with NGO involvement where possible, or are initiated, designed, monitored and subsidized by Government departments, with NGO assistance, and implemented through community mobilization for self-help activities. Early Education. The financing of early education and day care for children of working mothers appears to be bimodal in the Philippines. For families with higher incomes, there is a well-established private market for both of these types of services, at least in urban areas, though it is little regulated and of unknown quality. Public provision of these services for higher income families is difficult to justify. For the poor and for many rural communities, however, the situation is analogous to those for child health and malnutrition programs. The private sector in rural communities for early education services is not developed and is unlikely to emerge in the foreseeable future, due to low profit potential, unattractive settings, and weak demand caused by ignorance of early education benefits and the low priority given by poor families to pay with no immediate retum. Day care services for children with working mothers are provided either through informal family or neighbor arrangements, or through low cost but very low-quality Page 14 commercial arrangements. Again, NGOs provide only limited coverage in both cases. Experience around the world indicates that Government involvement is needed to develop good-quality early education services to the poor and disadvantaged. This can be done either through direct public provision (with NGO involvement where possible) or through initiation, monitoring and subsidization of conununity-level schemes. There is little experience with publicly provided day care for children of working mothers in the developing world, but publicly managed and funded schemes are unlikely to be effective or sustainable in the Philippines. Some subsidy and mobilization of the private sector (including employers) and NGOs may be the most promising approach. 2. Major related projectsfinanced by the Bank and/or other development agencies (completed, ongoing and planned: Sector issue Project Latest Supervision (Form 590) Ratings (Bank-financed projects only) _mplementation Development Bank-Financed Progress (IP) Objective (DO) Primary Education Sector Effective 1981, a sector loan with a policy Sector Program for Closed Closed and program reform agenda. Elementary Education Project (Ln. 2030-PH) Effective, 1991, a loan with budget support Second Elementary Closed Closed operation with some investment in Education Project infiastructure and no project management (Ln. 3244-PH) unit. Effective July, 1997, a standard investment Third Elementary S S project which will 1) strengthen the primary Education Project education system in 26 poor provinces (Ln. 4108-PH) through a bottom-up stakeholder-based system of planning and 2) strengthen DECS to manage this process at national and regional levels. Page 15 Sector issue Project Latest Supervision (Form 590) Ratings (Bakfnne projects only) Implementation Development Progress (IP) Objective (DO) Health Sector Effective 1990, closed end-1997; supports Philippines Health Closed Closed strengthening of national malaria, TB and Development Project schistosomiasis control programs, plus (PHDP) Ln. 3099-PH institutional strengthening of DOH, policy- linked research and a fund for community- 'level health-related micro-projects. It has been rated as satisfactory throughout its lifetime. Effective 1994; supports strengthening of Urban Health and U U primary health and nutrition programs for Nutrition Project urban slum populations, plus related (UHNP) Cr. 2506-PH institutional development of DOH and ]LGUs, policy research, and a fund for slum community micro-projects. It currently is rated unsatisfactory for the second time in its life, and a remedial plan is being implemented, to be followed up by a Mid- ternm Review. Effective 1995, supports strengthening of Women's Health and S S iwomen's health care services (including Safe Motherhood irst-level referral for complicated Project (WHSMP) pregnancies and deliveries, reproductive Ln. 3852-PH lhealth care and cervical cancer screening), related institutional development of DOIH, policy research, and a fund for related community micro-projects. It was rated satisfactory in its last 590. IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the project design: The health projects were all designed before significant post-devolution experience had accumulated, and education has only recently been partially devolved. Only UHNP is currently being implemented through LGUs. Thus experience relevant to the reality of post-devolution is still scanty and incomplete. The role and capabilities of the LGUs is nonetheless emerging as a major issue that must be successfully addressed for any future projects in devolved sectors, with special attention to LGU willingness and capacity to fully fand essential field-level staff. Donor coordination, particularly with the ADB, became another important issue during the appraisal of WHSMP, compounded by last-minute divergences in lending terms between the two Banks. Joint Bank/ADB negotiations were not held as originally planned, European Community Page 16 negotiations were delayed, and the project was fragmented among thre many donors involved. The lesson learned was that extremely close and good-faith partnership and collaboration must be achieved if the project design is to maintain its integrity. Other lessons to date from the health and primary education projects are mixed. Though there were problems with flows of funds, procurement and disbursement procedures in the earlier stages, the older projects in both sectors ultimately fulfilled their physical objectives, disbursed fully in the end, and were almost always rated satisfactory to highly satisfactory. Slow start-ups were (and are) the rule, but the older projects succeeded in catching up on most fronts. The piroblems encountered in day-to-day implementation were almost all related to inadequate arrangements for project management and insufficient attention to the details of implementation, particularly in the early stages of the projects. On the health side, where project objectives were relatively straightforward and no major policy reforms attempted, objectives appear to have been satisfactorily met. On the education side, where policy goals were ambitious and far-reaching, little policy and program reform was actually achieved. However the picture has changed recently with respect to the health projects UHNP and WHSMP. UHNP is reaching its mid- point substantially and increasingly behind schedule, due largely to major problems with DOH procurement procedures and to unstable and unsatisfactory management. No progress has yet been made towards meeting project objectives. WHSMP is now in its third year of implementation and has also slipped behind schedule, again due largely to procurement problems. It would thus appear that DOH's ability to implement has declined over time. To meet the concerns over procurement under UHNP, project-financed procurement is to be contracted out to a private-sector agency. To summarize, DOH and DECS have proved to be capable of implementing projects in these areas, but they have required attentive supervision to ensure that sufficient time and energy is devoted to project management. Ambitious policy and program reforms have not proved to be achievable. Recent experience with DOH also indicates a growing weakness in implementation, particularly in procurement where an alternative approach to DOH procedures is to be tried out. It is unfortunately too early for sound judgments on the sustainability of project inputs and outcomes, but the:re are worrying signs that the LGUs have lacked the necessary institutional capacity and commitment to maintain the strengthened programs (see below). Overall lessons for future projects are that: 1) projects should be structured to build upon and strengthen existing programs and interventions, with realistically-scaled degrees of change and reform; 2) project management systems must be carefully designed to maxinize attention to day-to-day implementation needs, with particular attention to possible alternative systems for procurement; 3) LGUs must be strengthened and fully integrated into project design and implementation arrangements; and 4) project design should aim to make LGU support of key field-level staff mandatory from the start of the project. 4. Indications of borrower commitment and ownership: As mentioned above, the Government of Philippines already supports an array of programs designed to promote the physical and mental development of pre-school children. All are endorsed and closely monitored by Congress, which initiated some of them and is currently considering a bill to promote universal access to pre-school. The Council for the Welfare of Children, an attached agency of DSWD, whose mandate is to oversee programs, policies and issues concerning children, may soon be transformed into a Commission attached to the President's Office. There is therefore unquestioned broad-based support for ECD programs within the Government and political institutions of Philippines at the national level, demonstrated most recently by the approval by Cabinet of the 10.-Year National ECD Development Program. Commitment has also been shown through the consistent support and inputs of the agencies involved in program and project development, particularly DSWD which is now the lead agency for project preparation. Two Population and Human Resources Development (PE1RD) Grants were requested for use in project preparation, of which the first was fully utilized and the second expected to be so. DSWD was and is a strong advocate for the project within Cabinet and with central agencies such as NEDA and the Page 17 Department of Finance, and includecl funds in its 1997 budget for early pilot implementation and pre- project activities. All three line agencies included counterpart and project funds in their 1998 budgets. 'The drawback to ECD commitment at LGU level to date has been the limited financial capacity of poorer LGUs and their uncertain commitment to social service funding. The design of LGU involvement in the project, with demand-driven sub-projects backed by intensive advocacy and IEC activities aimed at motivating LGUs to take up such sub-projects, is intended to address this issue. Feedback from consultations with LGUs during project preparation on participation in the project itself, including field tests of the computer-based planning tool, was very positive. Consultations were held with officials from targeted LGUs, and all demonstrated a very high level of willingness to participate in the project, with signed endorsements of the project by govemors, city and municipal mayors, vice-mayors, provincial board members, and city and municipal council members. Several mayors expressed serious interest in undertaking sub-projects and participated in drawing up initial outlines and budgets for proposals; six municipal/city councils passed resolutions to authorize sub-projects. Five such resolutions must be passed as a condition of effectiveness. 5. Value added of Bank support in this project: An ECD project would build on and supplement existing Bank-financed projects which support health programs in the areas of disease control, urban slum health services and reproductive health and maternal care, as well as primary education. Like them, it would target the poor, both through geographic area selection and because poor families are the major beneficiaries and heaviest users of state-financed public and primary health programs and the public primary education system. Bank , as well as ADB, involvement is needed because of the large scale of the additional ECD investment required. The national ECD programn would require investments estimated at more than P 780 million annually over the next decade; and the project is designed to contribute about 45% annually over the next six years to financing these expenditures. Government would be unable to finance the additional investments wholly out of domestic sources, and no bilateral donor grants have been identified for this project. UNICEF may be able to provide some funds, but has not yet finalized the next Five-Year Country Program due to start in 1999, and hence cannot currently make firm commitments. In any case, its likely contribution would not amount to more than a few US$ million. The Bank, with the ADB, is uniquely well placed to assist Government in mobilizing available grant financing under an umbrella ECD project because of the prior partnership of both Banks with Government in the ECD sector report, and in the health and education sectors. E: Summary Project Analysis (l)etailed assessments are in the project file, see Annex 8) 1. Economic Assessment (see Annex 4forfull discussion): Health and Nutrition: In 1994, the Profiles project developed a nutrition simulation model based on results found in the international literature and modified for the conditions in the Philippines, to examine the relationships between the nutritional status of young children and lower death and disease rates, lower health expenditures, lower rates of mental retardation, higher labor productivity in agriculture, and increased future eamings. More recently, during project preparation, traditional cost-effectiveness analysis (CEA) and cost-benefit analysis (CBA) of project inputs were used to build on the Profiles earlier work. The results of these studies indicate the delivery of health, nutrition and early education inputs from this project will be highly cost-effective, and combine in ways that strengthen the links between child health, education and economic returns. Investing in the health and education of children increases a country's overall standard of living by building human resources that generate higher economic returns, reduce social costs, and increase the efficiency of other investments. For health and nutrition interventions, the net present value of wage gains for children benefited by the project will increase from Pesos 9 billion to Pesos 30 billion. Page 18 Early Education: Early childhood development interventions improve school attendlance and performance, increasing children's prospects for higher productivity and future income. Additionally, these interventions will reduce the likelihood that children will become burdens on public health and social service budgets. Mothers also are helped by project investments. For early education, even on conservative assumptions, the ERR of the project interventions are estimated at a minimum of 15 percent, which iis the threshold usually applied in the Philippines to infiastructure interventions such as roads and irrigation systems. 2. Financial Assessment (see Annex 4forfull discussion): National Agencies: An analysis of the fiscal impact and sustainability of the project's investments at the national agency level shows them to be easily sustainable from expected future national agency budgets. Because of the overwhelming proportion of investment costs and minimal end-of-project recurrent costs for national agency project sub-components, recurrent costs for national level agencies beyond the life of the project are minimal. Total annual end of project recurrent costs for the national agencies amount to R2.6 million per year, or less than one one-hundredth of one percent (.01 percent) of the national agencies' combined annual recurrent budgets in 2003 (about P82 billion). The executing agency, DSWD, has the largest share of national agency recurrent project costs (1.4 million, or 25 percent of the total) and the smallest recurrent budget (P1,777 million), yet recurrent end-of-project costs represent less than one-tenth of one percent (.08 percent) of its annual recurrent budget. Municipalities and Cities: A study of the affordability of the LGU sub-projects was carried out at project preparation. The analysis is based on a sample of 94 municipalities, and examines the capacity of LGU discretionary resources to finance the ECD interventions. The results of the study suggest the project is affordable and sustainable for LGUs, particularly because the project implementation schedule has been adjusted to begin phasing in LGU sub-projects in year 2 (1999) of the project, thus avoiding the possibility of LGU budget deficits in year 1 (1998) of the project. All LGUs will begin their sub-projects in 1999 or later, and the timing allows them to allocate an expected IRA increase to finance project costs. Progressive matching grants from the national government to LGUs that cover initial investment costs and decrease the financial burden to the lowest income LGUs also improve project affordability. In addition, the burden of recurrent costs per capita for LGUs is relatively small, about one-half of one percent, when compared to annual LGU income per capita. 3. Technical Assessment: The technical interventions in child health, nutrition and early education that are to be piloted, upgraded or sustained under the project are almost all standard programs that have been tried and tested worldwide and proved successful in a wide variety of settings. Most, including the existing child health programs, the Day Care Center program and the existing set of field-level providers, are already well established in the Philippines and have achieved some degree of success; deficiencies are generally attributable to lack of adequate funding rather than technical shortcomings. All also are minimum-cost interventions using primary-level staff, community-based workers and basic facilities and equipment The major technical uncertainties are attached to two interventions to be respectively launched and substantially upgraded under the project, namely the PEM and PES programs. No successful national PEM program has yet been developed in Philippines, despite extensive experience with a wide array of numerous small-scale and fragmented malnutrition programs. However the national program to be introduced under the project has been designed on the basis of successful experience with similar programs in south India, Central and South America and southeast Asia. It also builds on the existing national Operation Timbang Page 19 child-weighing program, and has taken into account the lessons of the country's past experience with smaller malnutrition interventions. There are therefore solid grounds for expecting the new national program to succeed. By contrast, programs for parent and community-based psychosocial stimnulation of very young children are so far rare and only weakly understood worldwide; hence any intervention in this area is necessarily new, innovative and experimental in nature. However the existing PES program, though limited, has recently been favorably evaluated and provides a good basis for further development. To rninimize risks still further, and extract maximum value from the project's investment in them whatever their ultimate degree of success, both programs in their respective new and upgraded states will be piloted auid evaluated in five pilot LGUs during the first year of the project, before being implemented on a larger scale. In addition, the upgraded PES program will be evaluated as part of a collaborative research effort to be conducted by a team from the World Bank's Development Economics & Chief Economist Department, involving a longitudinal study of early education in three countries, including Philippines. Both programs are again minimum-cost interventions that utilize field-level staff, community-based workers and the most basic of facilities and equipment. 4. Institutional Assessment: a. Executing agencies: DOH and DECS have long experience with Bank projects and adequate staff strength both at central and regional level to manage and implement their portions of the project. Past project experience indicates that both are capable of effective implementation, but recent experience with DOH is not encouraging as regards procurement and project management. DSWD, on the other hand, is thinly staffed at both central or regional level and has not previously implemented a Bank project. However DSWD's capacity to manage and implement will be strengthened at both central and regional level by the project, under Component 2 (d) (see Annex 2), as will the capacity of CWC to provide policy guidance and oversight. The extremely limited institutional capacity of LGUs to manage and implement is a well known constraint on project effectiveness. However under Devolution they must bear primary responsibility for ECD service delivery and the issue is simply how to strengthen them to do so. This is the secondary project objective and sub-components 1 (b), 2 (b), and 2 (d) of the project (see Annex 2) are designed to provide the needed inputs. b. Project management: In this complex multi-sector, multi-agency and multi-layer project, the structure of project management must effectively balance the competing demands of efficiency in project management and implementation on the one hand, and strong teamwork and integration with the regular line agencies and LGU sectoral structures on the other hand. Given recent experience in the health portfolio, the efficiency of procurement is another particular concern. DSWD's lack of experience with Bank-supported projects and limited staffing must also be taken fully into account. The proposed management structure represents an effort to achieve this balance. To meet efficiency concerns, there will be strong project management offices (PMOs) at central and regional level, staffed by contractual personnel and long-term consultants. Contracting-out will be used extensively for procurement, the management and implementation of communications and much of R&D, and the implementation of training. All contracting-out will be managed in turn from the central and regional PMOs. To meet teamwork and integration concerns, the provincial PMOs will be staffed and financed by the provincial governments. Strong links with regular line agencies are built into the central and regional project managernent structures, through the multi-agency committees, ECD teams and taskforces, and the DOH and DECS project coordination units and agency coordinators, who will coordinate with the PMOs in implementation. ECD teams will be formed from existing sectoral officers at provincial and municipal level to manage, implement and monitor sub-projects. Page 20 A similar blend is planned for the financing facility for LGU sub-projects. The facility itself will be managed by the Central project management Office (CPMO) with the assistance of MDF which will be responsible for the financial appraisal, monitoring and auditing of sub-projects. However the provincial ECD teams will be responsible for recruitment of municipalities and cities and for providing mayors with technical assistance in proposal planning and preparation, using the specially designed computer planning software. The provincial ECD teams; also pre-appraise all sub-projects before they are forwarded to the Regional Project Management Offices (RPMOs) for approval. Technical supervision of sub-project implementation will be the responsibility of the provincial ECD teams and the RPMOs. Sub-project Assistance Agreements between the concerned LGU and the Borrower, through the central PMO, will formalize the execution and management of the sub-project. This structure is complex and, like all post-Devolution project planning, still experimental in many respects. However many of its building blocks, such as PMOs, Sub-project Assistance Agreements, and the concept of regional and provincial teams, are familiar to the implementing agencies and have functioned adequately in the past. It is therefore expected to be workable. Since the three regions to be covered under the project will serve as pilots for the LGU financing facility concept, the management system for the Fund and its adjunct support packages will be reviewed periodically by DOF and the Bank for efficiency in the light of accumulated experilence, and modified as necessary. 5. Social Assessment: The project would fall under the Program of Targeted Interventions, being targeted to poor families, communities and provinces. While women are not directly targeted as beneficiaries under the project, the heaith, nutrition and education benefits expected to accrue to their children would undoubtedly be considered by mothers as major gains in their welfare and quality of life. Nation-wide it is estimated that about 18 percent of the population of the Philippines belongs to indigenous population (IP) groups made up of seven broad ethnic groupings containing overall more than 60 separate ethnicities (see Map 2: "Location of Indigenous Peoples Groups" ). Both the broad groupings and individual groups of widely vazying origins and cultures, with no single group or broad grouping predominating overall. Of the three Regions where LGU sub-projects are to be carried out, IP groups make up less than five percent of the population in regions VI and VII, and all belong to the Negrito broad grouping. In Region XII, however, IP groups make up 60 percent of the population, belonging mainly to the Minganao broad grouping but with an admixture of the "Muslim Groups" broad grouping. The special needs of indigenous peoples as regards ECD were studied in a preliminary nation-wide survey and in the participative consultation process described below in Section 7. The results confirmed the previously-established picture of wide heterogeneity of cultures and ECD status and special needs across IP groups and broad groupings, making it impossible to formulate any single detailed strategy for ensuring that project interventions (either program-wide or at the level of LGU sub-projects) reduce ECD-related disadvantages among IP communities relative to their non-IP neighboxs. As a broad generalization, IP groups, because they tend to be poor, remote and marginalized, tend to have below-average ECD indicators and access to good-quality ECD services. Less important but still of significance for intervention design, the cultures of some IP communities also have special beliefs or customs requiring some tailoring of ECD service design and IEC activities to ensure their maximum effectiveness and uptake. The broad principles of the project's strategy are to improve access to and quality of ECD services to IP communities, including where necessary new or customized approaches to service delivery. These do not require any change in the content of the ECD programs which will be strengthened at regional level under the project. However the specific measures to be taken under LGU sub-projects to improve ECI) service access and to customize service design will need to be tailored at field-level to the special circumstances of each group if they are to be successful in improving ECD status and reducing IP disadvantages. Page 21 The approach adopted under the project will be based on municipality/city-level IP plans and province-level IP strategies for ECD. All LGU sub-proposals will be obliged to include IP plans for any IP groups present in the LGU, on the basis of an initial survey and consultation with such groups. To strengthen over time the capabilities of LGUs to prepare IP plans, the special circumstances and needs of all IP groups in Regions VI, VII and XII will be ascertained province-by-province no later than December 31, 1998 through special initial surveys and consultations. Province-specific participative IP strategies will then be prepared by March 31, 1999, including sub-strategies for each IP group separately. Each LGU sub-project proposal submitted after these sub-strategies are developed will be obliged to reflect in its IP plan the sub- strategies for all IP groups represented in that LGU; satisfactory provisions for sub-strategy measures will be checked at sub-project appraisal and required for sub-project approval. The implementation of IP plans under the LGU sub-projects will be monitored through community-level participatory action research. To assess the overall impact of project interventions, the provincial-level baseline survey of all IP groups will be repeated at the end of the project. Full treatment of provisions for LGU sub-projects will be included in the LGU Financing Facility Manual of Operations. More generally speaking, the overall consultation and beneficiary consultation process carried out during project preparation revealed few potential social-cultural constraints to acceptance and uptake of strengthened ECD services. There was a commonly-found ignorance among communities and families of the importance of intensive psychosocial stimulation of very young children, and of the signs and consequences of mild to moderate malnutrition in young children, but these issues will be addressed by the IEC sub-component 2 (a) of the project. Land for the construction of new daycare centers or health centers under LGU sub-projects will be provided by the barangay concerned. The need for additional land, not yet owned by the barangays, would be small. The following two principles adopted by the project will govem the process of obtaining land: (i) no land will be obtained whose use would require involuntary resettlement, and (ii) only land whose owners are willing to part with it voluntarily will be obtained, either as a donation or on the basis of a negotiated price. LGU proposals will mandatorily contain a description of the location and current use of any site designated for new construction, and, where appropriate, provision for any payment for loss of assets or loss of livelihood entailed. A certificate for each site will be attached to the sub-project proposal to be submitted for review and appraisal, providing evidence that (a) the land has been donated or an agreed price for the land or for deprivation of occupancy or use is to be paid, and (b) no involuntary resettlement is required. Full treatment of these provisions has been included in the LGU Financing Facility Manual of Operations. 6. Environmental assessment: Environmental Category [] A []B [X] C The project would not have any significant environmental effects. 7. Participatory approach: At the time of identification, plans were made for a participatory process of consultation designed to feed into program/project preparation. The process included three phases of consultation with beneficiaries, communities and LGUs. A grant from the Bank's Participation Fund was used to finance a successful pilot of the first phase, which was an assessment of beneficiary, community and LGU views and attitudes on ECD status and needs. The first phase itself was carried out during the first half of 1995 under PHRD Grant funding, and detailed reports were produced and used by the program/project preparation teams. The second phase, consisting of consultation with the same parties on the initial program/project proposal, was carried out during 1997 among indigenous peoples and LGU executives (governors and mayors) under funding from the second PHRD grant, and is planned shortly for mainstream communities under funding from ADB. A third phase, consisting of consultation with the same parties to present and promote the final project and begin the process of participation in its implementation, is scheduled for the pre-implementation Page 22 and early implementation period. A system to maximize subsequent participation during implementation will be designed on the basis of the results and findings of the third phase. F: Sustainability and Risks 1. Sustainability: The stakeholders in the ECD project include the national line agencies (DSWD, DOH, DECS) and the LGUs who implement sub-projects. All have compelling motives to sustain project investments and programs. DSWD will benefit through substantial strengthening of the agency and extension of its programs and activities. The project will provide critical strengthening of key DOH programs for child health, which are highly visible and closely monitored by Congress and thie media. DECS will benefit through investment in additional pre-school inputs, which have been one of their major policy concerns and priorities. An analysis of the fiscal impact of the project's investments at regional and provincial level shows them to be eminently sustainable from expected future agency budgets (see Section D.2). These are also expected to be institutionally sustainable given the strengthening of institutional capacity provided under Component 2 of the project. Likewise, an analysis of the fiscal impact on LGUs of the strengthened ECD programs shows them to be affordable after completion of the initial investment portion of the sub- projects (see Section D.2 ). Institutional sustainability of the national ECD program and strengthened provincial and LGU-level programs will be addressed through the inputs provided under Component 2 of the project. On the demand-side, the consultations held during project preparation with officials from targeted LGUs clearly demonstrated a very high level of interest in participating in the project and invest in improving ECD programs. Page 23 2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): Risk Risk Risk Minimization Measure Rating A. Early Education interventions may fail to MR (i) Design and implementation of new or innovative elements in early education programs deliver expected results regarding improved (particularly the PES program) will be piloted and evaluated under Component 3 early in project cognitive development and school-readiness. (evaluations of existing programs have indicated impact, though limited by current deficiencies which would be remedied by the project inputs). (ii) International experience and best practices have been and will continue to be heavily utilized for design and implementation of such interventions, including through a collaborative research effort with DEC, involving a longitudinal survey of the impact of early education in three countries. B. New national PEM program may fail to MR As for Early Education, (i) this new program will be piloted and evaluated early in the project under produce expected impact on child malnutrition Component 3, and (ii) both international and extensive previous smaller-scale country experience and (reduction in stunting and wasting). best practices have been and will be utilized in program design and implementation. C. There may be changes in DSWD, DOH, LR Stable motivation for commitment within each agency has been maximized as far as possible in DECS, leading to weakened commitnent and project design as follows: (i) ECD services and packages supported by project have been selected as ineffective implementation. being core interventions given high priority by DSWD, DOH and DECS. (ii) Responsibilities for implementation of components and sub-components have been allocated among line agencies in line with agency ownership and stake in programs covered. (iii) Strong links between central, regional and provincial agency structures and the corresponding project management structures have been incorporated in project management arrangements. D. There may unexpectedly prove to be lack of MR (i) Intensive and long-term strategies for promoting appreciation of and demand for ECD programs among strong consistent demand, commitment and/or both LGUs and beneficiaries (who are voters) have been incorporated in both the preparation process implementation capacity at LGU level for ECD (through the three-phase consultations exercises) and project design (Component 2). (ii) The LGU fund is programs, leading to lack of uptake of designed around: (a) a participative planning process for sub-projects with core ECD program priorities sub/projects from LGU fund and/or effective but maximum flexibility to cover local conditions and needs; (b) a flexible cost-sharing structure that takes implementation. into account both the experience of previous health projects with LGUs and their financial status, and also provides an initial test of demand and commitment; (c) direct contracting with LGUs through Sub-project Assistance Agreements; and (d) heavy technical assistance and support to strengthen LGUs in both the sub-project design and planning stage, and during and after implementation (Component 2). (iii) Demand for sub-projects was directly verified during project preparation through statements of general interest, preparation of several sub-project proposals and six municipal/city council resolutions to authorize sub- projects; five such resolutions are required as a condition of effectiveness. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) Page 24 3. Possible Controversial Aspects: None G: Main Loan Conditions L. Effectiveness Conditions: 1. The Borrower shall have established: (i) the Project Steering Committee; (ii) the national Project Management Office within DSWD and designated the national Project Director and the national Project Coordinator thereof, and (iii) in each Project Region, the regional Project Management Office within the Regional DSWD Office and designated the regional Project Coordinator thereof; 2. DSWD and DOF shall have executed a memorandum of agreement to establish the LGU Financing Facility under MDF, satisfactory to the Bank; 3. DSWD shall have adopted and put into effect an LGU Financing Facility Manual of Operations satisfactory to the Bank; 4. The municipal or city councils of at least five LGUs shall have passed resolutions satisfactory to the Bank, to authorize the respective LGUs to undertake sub-projects; and 5. The ADB Loan Agreement shall have been executed and delivered and all conditions precedent to its effectiveness or to the right of the Borrower to make withdrawals thereunder except only the effectiveness of the Loan Agreement, have been fulfilled. H. Other Agreements The Borrower shall: 6. (a) prepare, on the basis of guidelines acceptable to the Bank and furnish to the Bank not later than six months after the closing date of the project or such later date as may be agreed for this purpose between the Borrower and the Bank, a plan designed for the continued achievement of the project objectives; and (b) afford the Bank a reasonable opportunity to exchamge views with the Borrower on the said plan. 7. consult with the Bank in respect of any proposal to modify its 10-Year National Early Childhood Development Program. 8. (a) maintain a financial management system, including records and accounts, and prepare financial statements in a format acceptable to the Bank, adequate to reflect the operations, resources and expenditures for and in connection with the carrying out of the Project; (b): (i) have these records and accounts, including those for the Special Accounts for each fiscal year, audited, in accordance with auditing principles acceptable to the Bank, consistently applied, by independent auditors acceptable to the Bank; (ii) furnish to the Bank as soon as available, but in any case not later than six months after the end of each such year, (A) certified copies of the financial statements referred to in section (a) of this paragraph for such year as so audited, and (B) an opinion of such financial statements, records and accounts and a report of such audit by said auditors, of such scope and in such detail as the Bank shall have reasonably requested; and (iii) furnish to the Bank such other information Page 25 concerning said records and accounts and the audit thereof as the Bank may from time to time reasonably request; (c) for all expenditures with respect to which withdrawals from the Loan Account were made on the basis of statements of expenditure: (i) maintain or cause to be maintained, in accordance with section (a) of this paragraph, records and accounts reflecting such expenditures; (ii) retain, until at least one year after the Bank has received the audit report for the fiscal year in which the last withdrawal from the Loan Account was made, all records (contracts, orders, invoices, bills, receipts and other documents) evidencing such expenditures; (iii) enable the Bank's representatives to examine such records; and (iv) ensure that such records and accounts are included in the annual audit referred to in section (b) of this paragraph and that the report of such audit contains a separate opinion by said auditors as to whether the statements of expenditure submitted during such fiscal year, together with the procedures and internal controls involved in their preparation, can be relied upon to support the related withdrawals. 9i. (a) maintain an inter-agency Steering Committee, chaired by the Secretary or a duly authorized representative of DSWD, with a composition to be agreed to with the Bank, to provide overall guidance in the implementation of the project; and ensure that the Steering Committee shall meet at least once every calendar quarter to review the progress of the project; (b) in each of the project Regions, by no later than July 31, 1998 establish and, thereafter, maintain a Regional Early Childhood Development Team to be headed by the DSWD Regional Director, vith a composition acceptable to the Bank and with functions, responsibilities and resources satisfactory to the Bank, to provide guidance to the regional PMO and monitor the implementation of the 10-Year National Early Childhood Development Program and the project in the Region; (c) cause each Province within the project Regions to establish by no later han August 31, 1998 and, thereafter, maintain a Provincial Early Childhood Development Team with functions, responsibilities and resources satisfactory to the Bank, to provide guidance and assistance to the provincial PMO in the inplementation of the project within such Province; (d) maintain a national Project Management Office within DSWD, with fimctions, responsibilities and resources satisfactory to the Bank, managed and staffed by personnel in adequate number and with qualifications and experience acceptable to the Bank, to coordinate, supervise and monitor the inplementation of the project; (e) by no later than August 31, 1998, appoint, in addition to the national Project Director and national Project Coordinator, key staff acceptable to the Bank; (f) in each project Region, maintain a regional Project Management Office within the Regional DSWD Office, with functions, responsibilities and resources satisfactory to the Bank, managed and staffed by personnel in adequate number and with qualifications and experience acceptable to the Bank, to coordinate, supervise and monitor the implementation of the project within such project Region; (g) by no later than August 31, 1998, appoint, in addition to the Regional Project Coordinator, key staff acceptable to the Bank; (h) cause each Province in the project Regions to: (i) establish by no later than August 31, 1998 and, thereafter, maintain a provincial Project Management Office, to be headed by a provincial Early Childhood Development Action Officer; (ii) provide such provincial PMO with functions, responsibilities and resources acceptable to the Bank, staffed with qualified personnel in adequate number to enable it to coordinate and monitor the implementation of the project within such Province. 10. (a) carry out sub-component Lb of the project by establisiiing, through MDF, an LGU Financing Facility to make available to LGUs a portion of the proceeds of the Loan as grants to finance eligible sub- projects, under terms and conditions acceptable to the Bank; (b) administer the LGU Financing Facility in accordance with principles and procedures set forth in an LGU Financing Facility Manual of Operations satisfactory to the Bank, which shall set forth, inter alia: (i) the criteria and process for the selection of LGUs eligible for financing under sub-component L .b of Page 26 the project; (ii) the procedures and criteria for the review, appraisal and approval of sub-projects; (iii) the policy, guidelines and general procedures to ensure the participation of indigenous peoples in the design and implementation of sub-projects, and the implementation of the specific early childhood development plans for indigenous peoples developed by LGUs, when applicable; (iv) the cost-sharing arrangements between the Borrower and the respective LGUs; and (v) the procedures for monitoring and reporting of activities under the LGU Sub-projects; (c) furnish to the Bank for its prior concurrence any proposed revision to the LGU Financing Facility Manual of Operations. 11. in respect of each sub-project: (a) through the national PMO, enter into a Sub-project Assistance Agreement with the eligible LGU, satisfactory to the Bank, which shall specify the obligations of the LGU in accordance with the LGU Financing Facility Manual of Operations, including but not limited to its obligations to: (i) implement its respective sub-project under Sub-component 1 .b of the project; (ii) imLplement the indigenous peoples early childhood development strategy developed by the respective provincial PMO through its respective sub- project; (iii) provide, promptly as needed funds, facilities, services and other resources required for its respective sub-project; and (iv) upon completion of its respective sub-project, allocate adequate resources to ensure the continuing imnplementation of the objectives of the sub-project; (b) not make available the proceeds of the Loan for financing such sub-project until the above Sub-project Assistance Agreement has been entered into with the eligible LGU. 12. exercise its rights under each such Sub-project Assistance Agreement in such manner as to protect the interests of the Borrower and the Bank and to accomplish the purposes of the Loan and, except as the Bank may agree, shall not assign, amend, abrogate or waive such agreement or any provision thereof. 13. (a) prepare and, by November 30 of each year starting in 1998, furnish an annual micronutrient supplementation program to the Bank for its review and comments; and (b) thereafter, carry out the annual program through DOH, taking into consideration the Bank's view thereon. 14. ensure that no weaning foods be used as food supplements in dhe PEM control program under Sub- component l.b of the project unless such foods have been submitted to the Bureau of Foods and Drugs of DOH for quality-assuramce testing and been certified as meeting the applicable Govememnt standards. 15. prior to approving an investment project for financing as sub-project, require that the LGU proposing the project develop, if applicable, an indigenous peoples plan in accordance with the policy, principles and general procedures set forth in the LGU Financing Facility Manual of Operations; and thereafter, ensure that upon its approval, the sub-project shall be imnplemented in accordance with such plan. 16. (a) through each provincial PMO, by no later than Decenmber 31, 1998, carry out a baseline survey of all major groups of indigenous peoples within the province, under terms of reference acceptable to the Bank; (b) ensure that the baseline survey collect quantitative data on the status, knowledge, attitudes, practices and special needs of each such group in respect of early child development, its access to early child development services, service utilization, receptivity to the project and willingness to participate in it; (c) ensure that each provincial PMO hold consultations with each such group; (d) by no later than March 31, 1999, on the basis of the baseline survey findings, and in accordance with the policy and procedures set forth in the LGU Financing Facility Manual of Operations, through the Provincial Early Childhood Development Team and the provincial PMO, develop a provincial Page 27 indigenous peoples early childhood development strategy acceptable to the Bank which will incorporate distinct strategies for each major group of indigenous peoples within the Province, as may be necessary; (e) thereafter, ensure that the baseline survey findings and provincial indigenous peoples early childhood development strategy are applied by the LGUs in their development of indigenous peoples plans. 17. (a) by September 30, 1998, formulate a training program for Sub-component 2.c of the project in accordance with terms of reference acceptable to the Bank, and furnish such training program to the Bank for its review and comments; (b) thereafter, carry out the program taking into consideration the Bank's view on the matter. 18. by no later than September 30, 1998, put into effect its Financial Information System for Foreign- Assisted Projects. 19. by no later than July 31, 1998: (a) under terms of reference acceptable to the Bank: (i) complete the design for the National Nutrition Survey to be carried out in 1998; and (ii) formulate the evaluation protocol for the pilot programs for PEM control and for parent effectiveness services under Sub-component L.a of the project; and (b) provide the design and the evaluation protocol to the Bank for its review and comment and, thereafter, put them into effect in carrying out the National Nutrition Survey and in evaluating Sub- component l.a of the project, taking into account the Bank's view thereon. 20. (a) carry out the studies and surveys under Component 3 of the project in accordance with terms of reference acceptable to the Bank; and (b) provide the Bank for its review and comments the results and recommendations of such studies and surveys. 21. in respect of Sub-Component 3.a of the Project: (a) closely monitor the piloting of new early child development interventions and service delivery systems; and (b) by December 31, 1999, prepare under tenns of reference acceptable to the Bank and provide to the Bank for its review and comment an evaluation of each such pilot intervention. 22. (a) by December 31, 1998, carry out a baseline survey in respect of early childhood development and the quality and level of related services in the project Regions, under terms of reference acceptable to the Bank; (b) by June 30, 1999, review with the Bank the findings of the survey with the view to, as the case may be, confinn the key perfornance indicators, baseline values and targets acceptable to the Bank or to modify such indicators, baseline values and targets in a manner satisfactory to the Bank; and (c) by June 30, 2004, carry out a repeat survey under terns of reference acceptable to the Bank for the purpose of evaluating the achievements and impact of the project. 23. (a) maintain policies and procedures adequate to enable it to monitor and evaluate on an ongoing basis, in accordance with indicators and targets acceptable to the Bank, the carrying out of the Project and the achievement of its objectives; (b) prepare, under terms of reference satisfactory to the Bank, and furnish to the Bank on or about July 31 and January 31 of each year, commencing in July 1998, a report integrating the results of the above monitoring and evaluation activities, on the progress achieved in the carrying out of the project during the period preceding the date of each such report and setting out the measures recommended to ensure the efficient carrying out of the project and the achievement of its objectives during the period following such dates; Page 28 (c) on or about September 30, 2000, carry out a mid-term review under terms of reference acceptable to the Bank, of the progress achieved in the carrying-out of the project during the period preceding such date and setting out measures recommended to ensure the efficient carrying-out of the project and the achievement of its objectives during the period following such date; and (d) review with the Bank, within one month following the date of each such report, or such later date as the Bank shall request, each of the above reports, and, thereafter, take all measures required to ensure the efficient completion of the Project and the achievement of its objectives, based on the conclusions and reco_mendations of such report and the Bank's views on the matter. H. Readiness for Implementation The Project Implementation Plan was appraised and found to be realistic and of satisfactory quality. The LGU Financing Facility Manual of Operations, which was substantially complete but requiring final editing, was appraised and found to be of satisfactory quality. The following items are lacking or not completed and are discussed under loan conditions (Section G): LGU Sub-project Operational Manual: plan for evaluation of PES and PEM Programs: design of baseline nutrition surveys; provincial baseline surveys and strategies for indigenous peoples groups; baseline and final evaluation survey. L Compliance with Bank Policies [xl This project complies with all applicable Bank policies. Task Team Leader/lask Manager: Althea Hill Sector Manager/Director: Maureen Law Country Manager/Director: Vinay Bhargava Annex 1 Page I PHILIPPINES Early Childhood Development Project Project Design Summary I Project Broad Project Key Indicator (regional Development Approaches level for Regions 6,7 and Objectives 12, separately and Target Source W/ or W/o Controls weighted average) 1. To contribute to the 1. Upgrade central Under 5 mortality rate Reduce by 30% from Baseline and final with controls (matched attainment of human ECD programs in baseline value surveys provinces from other development goals by project regions regions) providing services that through region-wide ensure survival and additional critical Combined index of child Combined index of child Baseline study with controls promote the physical inputs in: development (motor and development (motor and developing this (matched provinces and mental develop- cognitive) cognitive) indicator and from other regions) ment of Filipino children, particularly those who are most * Expanded Proportion of children 90% of children in that Baseline and final with controls (matched vulnerable and most Program of aged 12 to 18 months age group surveys, EPI service provinces from other disadvantaged. Immunization fully immunized statistics for mnidterm regions) year * Integrated Management of Child Illness * Micronutrients/ Proportion of children Reduce by 30% from Baseline and final with controls for Food fortification under 6 with anemia baseline value surveys (annual baseline and final haemoglobin survey surveys (matched for m-idtermn year) provinces from other ________________________ _____________________ ~~~~~~ ~~ ~~regions) Annex 1 Page 2 Project Broad Project Key Indicator (regional Development Approaches level for Regions 6,7 and Objectives 12, separately and Target Source W/ or W/o Controls weighted average) * Parent Combined index of child Targeted improvement to Baseline study with controls (matched Effectiveness development (motor and be determined during developing this provinces from other Service cognitive) baseline study developing indicator and repeat regions) this indicator final survey * Grade I Completion rate for 70% of children entering DECS statistics for with controls (matched Curriculum Grade I Grade I baseline, final and provinces from other Enrichment years regions) 2. Provide financing facility for LGU sub- projects to upgrade ECD services, including new features: 0 * upgraded PES Combined index of child Targeted improvement to Baseline study with controls (matched program development (motor and be determined during developing this provinces trom other cognitive) baseline study developing indicator and repeat regions) this indicator final survey * new PEM Proportion of children Decrease by 40% from NNS 1998 and 2003 with controls (matched program with grade 2 and 3 wasting baseline value surveys; growth provinces from other monitoring service regions) statistics for midterm year new CDW worker to Proportion of 50% of municipalities/ Project MIS and without controls manage these two municipalities/ cities with cities special final survey above programs active CDWs Atnriex 1 Page 3 Project Broad Project Key Indicator (regional Development Approaches level for Regions 6,7 and Objectives 12, separately and Target Source W/ or W/o Controls weighted average) 2. To establish an 1. Provide financing Proportion of targeted 90% of Project MIS without controls effective partnership facility for LGU ECD municipalities/cities who rnunicipalities/cities between national and sub-projects, as have implemented ECD local governments in above. subprojects the provision of ECD services 2. Provide support to Proportion of children 75% of children in that DSWD statistics for with controls (matched LGUs in designing aged 3 to 5 in targeted age-group baseline, midtern and provinces from other and implementing municipalities attending final years, plus regions) sub-projects in the daycare centers baseline and final areas of: surveys OQ * IEC Proportion of 50% of Project MIS and without controls F- * Planning, municipalities/cities with in unicipalities/cities special final survey Targeting and active CDWs MIS * Training Proportion of 50% of targeted Project MIS and without controls * Management municipalities/cities with municipalities/cities special final survey functioning PEM pro- ns in 2003 Page 32 Annex 1 Page 4 Project Design Summary II Narrative Summary Key Performance Indicators Monmitoring and Critical Assumptions (Note: Baseline Values of Key Suipervision and Risks Indiicators WflU Be Verified at BaseUne Survey and Target Values Re-Assessed/Determined) I CAS Objective (CAS Objective to Bank Mission) Assumption To assist in the design and Indicators of the breadth and Methodology and Poverty alleviation in implementation of more depth of poverty similar to those instruments for poverty Philippines will require effective and efficient used in "A Strategy to Fight measurement and sustained broad economic mechanisms for poverty Poverty: Philippines". monitoring as laid out in growth and development alleviation while upgrading Annex A to "A Strategy as a basis for specific the quality of social services to fight Poverty: anti-poverty available to the poor Philippines". interventions. Project Development (Development Objectives Objectives to CAS Objective) Risks To contribute to the Reduction in the under-five Baseline, end-project Attainment of human attainment of human mortality rate surveys development goals, in development goals by part through improved providing services that Reduction in the prevalence of early child develop-ment, ensure survival and wasting and stunting Baseline, mid-term, end- and effective central/local promote the physical and project surveys partnership in ECD mental development of Reduction in the prevalence of service delivery, may not Filipino children, micro-nutrient deficiencies (iron, Baseline, mid-term, end- alleviate poverty particularly those who are iodine, vitamin A) project surveys significantly unless most vulnerable and most accompanied by overall disadvantaged. economic growth and development Effective central/local To establish an effective Percent of targeted municipalities Project records partnership in ECD partnership between who have implemented ECD service delivery may not national and local investment packages result in upgraded quality governments in the of social services unless provision of ECD services. Increase in the spending of accompanied by adequate municipalities on ECD services. Baseline, nmid-term, end- IRA allocations to poor project studies LGUs Baseline and targeted values should be shown, with the latter divided into values expected at mid-term, end of project and full impact. Page 33 Annex 1 Page 5 Project Outputs Outputs to Devip. Objectives) Risks Improved Child Health Improvement in the percentage of Baseline, mid-term, end- Changes in DOH leading Programs in the three fully immunized children in the project surveys plus EPI to weakened commitment project regions three project regions program statistics and ineffective implementation Improved micronutrient Decrease in the proportion of Nutrition baseline and Changes in DOH leading status of children in the children with deficiencies in iron, end-project surveys to weakened commitment three project regions iodine and vitamin A and ineffective implementation Imprcved access to foods Proportion of foods purchased by Annual community Changes in the economy fortified with iron, iodine, families which are fortified monitoring surveys in or food industry reducing vitamin A LGUs with sub-projects industry's current interest in food fortification as a selling point and social contribution Establishment of improved Reduced drop-out rates from DECS program statistics Changes in DECS leading Grade 1 curriculum in three Grade I to weakened commitment project regions and ineffective implementation Improved ECD Services in Percent of targeted municipalities Project records Changes in the economy at least 69 municipalities in who have implemented ECD or Govermment leading to at least 10 provinces, investment packages reduced IRA and other including the PEM and revenues for LGUs upgraded PES programs Reduction in rates of stunting and Program statistics plus Changes in economy or wasting baseline and end-project Government policies nutrition surveys leading to increased levels of poverty and lower Percent of municipalities with a Project records plus end- educational levels functioning PEM program project nutrition survey Percent of municipalities with an Project records plus end- Failure of new PEM active CDW worker project survey program to produce expected impact on child malnutrition Increase in the percentage of Program statistics plus Changes in DSWD municipalities with a functioning project records leading to weakened day care center of acceptable commitment and quality ineffective implementation Page 34 Annex 1 Page 6 Improvement in School Readiness Baseline and end-project Failure of upgraded PES surveys plus DEC program to produce longitudinal survey expected impact on child cognitive development and school readiness Failure of day care center interventions to deliver expected results regarding cognitive improvement and school readiness Project Components US$ millions (Components to Outputs) 1. Service Delivery 34.9 Risks a. Program Support 9.5 Program Statistics from Changes in DOH, for Provincial LGUs DOH, DS'WD and DECS DSWD or DECS Project M;IS leading to weakened commitment and ineffective implementation. b. LGU Support Fund 25.4 Project MIS Unanticipated changes in beneficiary attitudes leading to lack of demand or uptake of strengthened services 2. Support to Service 12.3 Delivery a. IEC Support 1.3 ProJect MIS Unanticipated changes in beneficiary attitudes leading to resistance to IEC activities b. Planning Support 3.7 Project MIS c. Training and 3.5 Project MIS Human Develop- ment Support d. Management 3.8 Project MIS Support Page 35 Annex 1 Page 7 3. Research and 3.6 Development a. Pilots of Project 0.2 Project MIS Interventions b. New and Innovative 1.9 Project MIS Approaches c. Monitoring and 1.5 Project MIS Evaluation of Project Page 36 Annex 2 PHILIPPINES Early Childhood Development Project Detailed Project Description Introduction The project focuses on the upgrading and extension of ECD services. The overall approach, for reasons of political acceptability, simplicity and ease of implementation, and minimization of costs and implementation risks, is to build upon existing ECD programs and experience in the Philippines. This means upgrading and extending well-established programs of adequate design, such as the Child Survival, Day-Care Center and Parent Effectiveness programs; using experience from programs that have not worked or lasted to design, test, evaluate and establish an improved program, such as the new national PEM program; and trying out new programs only where no established program exists, such as the Day-Care Mother program. The progress of all new or substantially upgraded programs or interventions, such as PEM, PES, Day Care Mothers, food fortification, iron supplementation and IMCI, will be reviewed at the end of the first year of project implementation. The Package of ECD Services ECD services which are or will be provided in the three project regions under the ECD program and project include: Child Survival Programs: These provide basic preventive health care to young children. The most important are: the Expanded Program of Immunization (EPI) which immunizes against tetanus, tuberculosis, typhoid, diphtheria, polio, measles and sometimes other diseases; the Control of Acute Respiratory Infections (CARI) program, vhich screens for and treats pneumonia with antibiotics; the Control of Diarrheal Diseases (CDD) program, which promotes and provides oral rehydration therapy as a palliative treatment for diarrhea; and the micronutrient initiative which provides iron, iodine and vitamin A supplements to mothers and children. To these existing staple programs, implemented worldwide, is to be added the Integrated Management of Childhood Illness initiative, which seeks to integrate and improve the treatment of sick children. The core provider of these programs is the Rural Health Midwife (RHM), assisted by volunteer Barangay Health Workers (BHWs). The implementing agency for child health programs is DOH (Matemal and Child Health Service). Protein-Energy Malnutrition (PEM) Program: This new programr, which was preceded by many smaller-scale programs, will screen all children aged 6 months to two years for faltering growth or established wasting or stunting, provide food supplements for a limited period (as a nutritious snack food) to children in need, and educate families on correct child feeding practices. The core provider will be the new Child Development Worker (CDW), in partnership with the RHM (who does some infant and child growth monitoring) and the BHWs; the CDWs will be recruited from the existing limited cadre of Barangay Nutrition Scholars (BNSs) if present, and if not, from BHWs or other outreach workers or community members. The program will be piloted in the first year of the project in five sub-projects and evaluated at the end of a year. The implementing agency for nutrition programs is DOH (Nutrition Service). Food Fortification Program: This new initiative is expected gradually to take over coverage of most of the country's micronutrient supplement needs and eventually to be almost entirely Page 37 Annex 2 Page 2 financed by the food industry. It would work with the industry to develop fortification of suitable mass-produced staple foodstuffs with iron, iodine and vitamin A, and support limited transition costs including information, education and communication activities. The implementing agency is DOH (Nutrition Service). Day-Care Center Program: This national program, instituted by Congress, mandates by law the establishment of at least one Day-Care Center (actually a pre-school) in every barangay. One Day-Care center is supposed to serve 60 children aged three to five years through two daily half- day classes of 30 children each. The centers are run by Day-Care Workers (DCWs), one per 60 children. Not more than half the country's barangays currently yet have a Day-Care Center. The implementing agency is DSWD., Parent Effectiveness Service (PES): This national program provides training and promotion for parents in how to provide effective psychosocial stimulation for their young children and hence enhance their cognitive development. The core providers are DCWs and Social Welfare Officers (SWOs) but the spread of the program is still extremely limited. Under the project it will be extended and upgraded with a focus on children aged zero to two years, and the core provider will be the CDW. The program will be piloted in the first year of the project in five sub-projects and evaluated at the end of a year. Day-Care Mothers (DCMs): This new and experimental program will provide day care for young children of working mothers, with some psychosocial stimulation input included. The core providers will be trained community mothers, assisted by the CDW. Improved Grade 1 Curriculum including Pre-School Elements: This new national curriculum will focus on an eight-week pre-school module at the start of first grade, as a part of the first- grade standard curriculum. It is intended to compensate for the lack of pre-schooling among most school entrants. The providers will be first-grade teachers. Outline of the Project Component 1: ECD Service Delivery (base cost US$34.9 million) Sub-Component 1.A: Program Support for Provincial LGUs. This sub-component consists of five packages , comprising support to all provinces in the three project Regions for five programs, namely the Expanded Program of Immunization (EPI), the Integrated Management of Child Illness (IMCI) Program, the Micronutrient Malnutrition Prevention and Control Program, the Parent Effectiveness Service (PES) Program, and the Grade 1 Early Child Experience/Early Child Development (ECE/ECD) Program. The Expanded Program of Immunization package will supply crucial needed additional inputs to the EPI program in all the provinces of the three project regions, including replacement cold- chain equipment, training of cold-chain technicians in cold-chain management, maintenance and repair, and training of primary health care staff in basic EPI skills. The project will finance the cost of: freezers, refrigerators, icepack freezers, voltage regulators, cold boxes, icepacks and thermometers for provincial, municipal and city health offices, and refrigerators, transport boxes, vaccine carriers, icepacks, thermometers and voltage regulators for rural health units: maintenance and repair costs for the above equipment during the life of the project; and training courses in basic EPI skills for newly-appointed and selected in-service RHMs. This package would be managed by the DOH Maternal and Child Health service. Page 38 Annex 2 Page 3 The Integrated Management of Child Illness package will support the initiation in the Philippines of the World Health Organization (WHO)-supported IMCI program, which aims to improve the diagnosis, management and treatment of common childhood conditions such as pneumonia, diarrheal disease, dengue, malaria, tuberculosis, anemia and malnutrition. The package will provide in-service IMCI training for doctors, nurses and midwives, support the integration of IMCI into the curricula of medical, nursing and midwifery schools, and supply delivery and diet kits to improve case-management of conditions affecting the new-born. The project will finance the cost of: IMCI training planning workshops in the project regions and provinces; training of IMCI trainers; IMCI training equipment and materials; workshops to plan, develop and evaluate pre-service IMCI training for medical, nursing and midwifery schools; in-service IMCI training courses for doctors, nurses, RHMs at city health centers, rural health units and barangay health stations; follow-up and supervision of trained health providers by IMCI trainers; incremental IMCI-related equipment for health units (e.g., pediatric cuffs for sphygmamometers, nebulizers and pneumatic otoscopes); and IMCI orientation seminars for first-level referral hospital staff. The package would be managed by the DOH Maternal and Child Health Service). The Micronutrient Malnutrition Prevention and Control package will prevent, manage and control major micronutrient deficiencies (in iron, iodine and vitamin A) in the Philippines through a mix of direct supplementation, food fortification and deworming of children. The overall strategy is to phase out direct supplementation, except for special high-risk groups such as pregnant women, over the life of the project, and correspondingly promote comprehensive industry-financed fortification of staple foodstuffs (salt, sugar, flour, rice, oil), backed by regular deworming. The package would support a program of interim iron supplementation (the current gap in DOH's micronutrient supplementation program) on a declining basis, deworming, and promotion of industry-financed fortification of staple foodstuffs with major micronutrients. The provision of supplements of iodine, vitamin A and current small amounts of iron out of regular DOH budgets would continue in parallel. All supplementation would be gradually phased out during the life of the project, with declines planned annually according to monitoring data on matching expansion in coverage of needs through food fortification. The project would finance the costs of: iron supplements for pregnant and lactating mothers., low-birthweight infants and all 6-month-old infants; weighing scales for infants to identify low..birthweight babies; deworming tablets for children aged 2-6 years; materials and activities for advocacy and promotion among food producing companies of the fortification of salt, sugar, oil, rice and flour with iodine, vitamin A and iron; and materials and activities for social marketing to promote consumer acceptance and preference of fortified foods. The package would be managed by DOH (Nutrition Service). The Parent Effectiveness Service package will upgrade the current PES program through introduction of a Mother and Child book, which provides a permanent record of child growth and development from birth to sixth birthday, and reproduction and distribution of an epdated version of a parent's manual on early child development developed for an earlier project. Further upgrading of the PES will be carried out in the context of LGU sub-projects, where the new cadre of Child Development Workers will be trained as the key PES provider and will be responsible for community-based parent education and a psychosocial stimulation program for children aged 0-3 years. The project will finance the costs of: design, production, printing and distribution of the Mother and Child Book; and reproduction and distribution of parent's manual on early child development. The package would be managed by DSWD in coordination with DECS, who will incorporate it into its Teacher-Child-Parent program, and DOH lProvincial Health Offices, who will incorporate it into its health education program. The Grade I ECE/ECD package will improve the child-readiness of elementary schools through Page 39 Annex 2 Page 4 Region-wide introduction of an already pilot-tested enriched Grade I curriculum that contains an 8-week "Early Child Experiences"(ECE) module incorporating more innovative and participatory approaches, as well as complementary health and nutrition inputs to first-graders consisting of iron supplementation and deworming. The project will finance the costs of: refinement and finalization of the 8-week module and the modified Grade 1 curriculum containing it: design, production, printing and distribution of teaching materials related to the 8-wveek module and the new Grade I curriculum; training of trainers for the new curriculum; in-service training of teachers in the new curriculum; the reproduction and distribution of training and teaching materials; iron supplements for Grade I entrants; and deworming tablets for Grade I entrants. The package would be managed by the Department of Education, Culture and Sport (DECS). Sub-Component l3.B: Financing Facility for Municipal/City Local Government Unit (LGU) ECD Sub-Projects. This financing facility, which will operate through the Municipal Development Fund (MDF), will provide matching financing, on a flexible cost-sharing basis geared to LGU income levels but with full funding by LGUs of major recurrent costs, for LGUs who wish to invest in upgrading of their ECD services. LGUs would, with technical support from the project, submit proposals for three-year investment packages for appraisal, and implement them once approved. The fund would cover three Regions, namely Regions VI, VII and XII, containing a majority of the country's poorest children. It would be open to all LGUs in the three regions, but over 80 percent of the funds available would be reserved for the 10 provinces and 169 cities and municipalities with the greatest number of needy and at-risk children; these LGUs would be targeted for active recruitment. A region from Mindanao was included as a contribution to Government's new development initiative there. Some new and innovative elements of the investment packages, such as the new protein-energy malnutrition (PEM) control program, would also be pilot-tested in five selected LGUs during the first year of the project under Component 3 (Research & Development). The generic cost-sharing formula is shown below: LGU Income Class % Grant % Equity 1st Class 40 60 l 2nd & 3rd Class 60 40 4th to 6th Class 80 20 Standardization and quality of proposals for sub-projects would be achieved through use of specially-designed computer-based planning software which is designed, with accompanying technical assistance from specially trained members of the provincial ECD team, to help mayors and their planning teams in formulating their ECD investment packages. This planning tool is based upon a standard complete set of ECD services, including workers, facilities, equipment and supplies, together with a set of standard ECD key indicators which are assembled in advance for each municipality or city. The mayor and municipal/city planning team employs the user- friendly software to identify current performance on ECD indicators and current gaps in ECD services, then chooses from among the available ECD packages an affordable and appropriate investment package for that municipality/city. The software also includes a template for immediate preparation of the proposal document itself, and would be further used during implementation for monitoring of progress in the sub-project. The core of the investment packages would be supplementation or upgrading of barangay-level ECD service providers to form an integrated ECD team, including rural health midwives (RHMs), day-care workers (DCWs), day-care moms (DCMs), barangay health workers (BHWs) and child development workers (CDWs). Facilities, equipment and drugs and needed supplies such as drugs, food supplements, teaching materials and IEC materials would also be provided to Page 40 Annex 2 Page 5 achieve specified service norms. The team would provide a set of integrated ECD services, comprising child health services (including micronutrent supplementation), a program to control protein-energy calorie malnutrition , parent effectiveness services to promote psychosocial stimulation for children under 3, Day-Care Center early education, and day-care for children of working mothers. This sub-component would be managed by the Department of Social Welfare and Development (DSWD). Component 2: Support to Service Delivery (base cost US$12.3 million) This component would provide support to LGUs in implementing their investment packages in the areas of communications (advocacy, information, education, communication, for LGU executives, opinion leaders and decision makers, ECD providers and parents), planning, targeting and management information systems (MIS), training and human resource development, and institutional development. Support would be provided at the central, regional, provincial and municipal levels. There would be four sub-components, covering respectively communications, planning/targeting and MIS, training, and strengthening and support of the management capacity of LGUs, the project management structure, and the Council for the Welfare of Children (CWC), which is expected to become the apex agency for the national ECD program in the longer term. This sub-component would be managed by DSWD, in coordination with a mix of agencies, and NGOs, as appropriate. There would be four sub-components, as follows: Sub-Component 2.A: Support to Communications. This sub-component would support: advocacy for increased LGU investment in ECD services, aimed at LGU leaders and LGU and national agency officials; the promotion of correct delivery of ECD services, aimed at providers, their supervisors and community leaders; and general IEC to promote optimum ECD-related behavior, aimed at mothers, caregivers, and those who influence them. The project would finance the costs of: development of IEC strategies, plans,. messages and campaigns; development, production and distribution of IEC materials; conduct of IEC campaigns and activities; and monitoring and evaluation of JEC materials and activities. Sub-Component 2.B: Support to Planning, Targeting and MIS. This sub-component would support the planning, targeting, and monitoring and evaluation of LGU ECD investment packages. The project would finance the costs of: developing, fielding and modifying as necessary the computer-based planning tool to be used for investment package design and monitoring and evaluation (M&E); strengthening of planning and targeting capacity through training, technical assistance and upgrading of equipment and facilities; and strengthening of MIS systems through system improvement and redesign as needed and provision of technical assistance, equipment and upgrading of facilities. Sub-Component 2.C: Support to Training. This sub-component would support training in the new integrated ECD system, services and workloads for: field-level ECD service providers; their supervisors; members of ECD planning, monitoring and coordination teams; trainers and trainers of trainers; and ECD program and project management staff. The project would finance the costs of: development of competency standards for trainees; development of courses and curricula, including teaching and reference materials; conduct of training needs assessments for primary care providers and their supervisors; identification and contracting of a pool of trainers of trainers and training network in project regions and provinces; establishment of a national ECD training Page 41 Annex 2 Page 6 accreditation system; and the training of the above categories of trainees. Sub-Component 2.D: Support to Institutional Development. This sub-component would support the development of capacity to manage and operate effective ECD services at all levels of Government, as well as of the capacity of communities and families to participate in the planning and implementation of ECD services on a sustained basis. The project would finance the costs of: the upgrading of CDC to function effectively as the apex agency for ECD policy and program coordination and oversight, including technical assistance, training, equipment, and facilities upgrading if needed; and the establishment and operation of the ECD program and project management structure at all levels, including technical assistance, training, facilities upgrading if needed, equipment, salaries of contractual personnel, and operating costs. Component 3: Research and Development (R&D) (base cost US$3.6 million) This component would finance R&D activities needed to support effective ECD program/project implementation, including initial piloting of new field-level technical interventions proposed under the project. There would be three sub-components, the first covering piloting of project interventions, the second consisting of unprogrammed financing for research and testing of new and innovative approaches to ECD services, and the third covering monitoring and evaluation of the effectiveness and impact of the project, including baseline and end-project evaluation surveys. This component would be managed by DSWD in coordination with CWC, and a mix of agencies as appropriate. There would be three sub-components, as follows: Sub-Component 3.A: Pilot-testing of Project Interventions. This sub-component would finance the pilot testing of the new interventions and service delivery systems. Major pilots to be carried out early in the project would be of the new PEM program, the upgraded PES program, and the new, improved ECD service delivery package itself. These pilots would be carried out over a three-year period, beginning in the first year of the project, in 5 "laboratory" LGUs selected for commitment to ECD, willingness to participate in experimental studies, managerial capacity, and commitment to sustaining successful models after the pilot is over. Sub-Component 3.B: Program Innovation and Policy Development. This sub-component would provide financing for research and testing of innovative approaches to the design, technical content and provision of ECD services. Topics would include technological studies on double fortification with iron and vitamin A, loan schemes for small salt producers to iodize, distance education approaches to ECD training, best practices in preschool education, experimentation with alternative ECD delivery systems in remote indigenous peoples' communities, home-based alternatives to the day-care system of preschool, etc., as well as other research interests that may emerge during the project. Sub-Component 3.C: Project Monitoring and Evaluation. This sub-component would support studies and surveys to measure the effectiveness and impact of the project. It would include baseline surveys at national and regional level: matching end-of-project evaluative surveys; a limited mid-term survey if considered useful; KAP surveys; special nutrition baseline and end- project surveys incorporated into the 1998 and 2003 National Nutrition Surveys; annual haemoglobin surveys; annual community-based food fortification monitoring surveys; special baseline and end-project consultative surveys in indigenous peoples' communities; and a collaborative longitudinal study with DEC to assess the impact of early education interventions. This component would be managed by DSWD in coordination with CWC, and implemented by a mix of agencies as appropriate. Page 42 Annex 3 PHILIPPINES Early Childhood Development Project Estimated Project Costs Project Component Local Foreign Total -----------------------US $ million-------------------- 1. ECD Service Delivery a. Program Support for Provincial LGUs 7.0 2.5 9.5 b. Financing Facility for Municipal/City LGU ECD 18.1 7.3 25.4 Sub-Projects Subtotal 34.9 2. Support to LGU Sub-Projects a. Communications Support 1.3 0.0 1.3 b. Planning, Targeting & MIS Support 1.5 2.2 3.7 c. Training Support 3.1 0.4 3.5 d. Institutional Development 3.4 0.4 3.8 Subtotal 12.3 3. Research and Development a. Pilot Testing of Project Interventions 0.1 0.1 0.2 b. Program Innovation and Policy Development 1.7 0.2 1.9 c. Benefit Monitoring and Evaluation 1.2 0.4 1.6 Subtotal 3.6 Taxes and Duties 1.7 0.0 1.7 Contingencies 5.3 0.9 6.2 Total Project Cost 44.3 14.5 58.8 Page 43 Annex 3 Page 2 Project Financing Plan Project Component Total Project Bank ADB Govt Nati. LGUs ----------------------------------US $ million ------------ ------------------------- 1. ECD Service Delivery a. Program Support for Provincial LGUs 9.5 4.6 4.9 b. Financing Facility for Municipal/City 25.4 5.4 8.7 5.7 5.6 LGU ECD Sub-Projects ;Subtotal 34.9 10.0 13.6 5.7 5.6 2. Support to LGU Sub-Projects a. Communications Support 1.3 1.3 b. Planning, Targeting & MIS Support 3.7 3.7 c. Training Support 3.5 0.4 3.1 d. Institutional Development 3.8 3.8 Subtotal 12.3 5.4 3.8 3.1 3. Research and Development a. Pilot Testing of Project Interventions 0.2 0.2 b. Program Innovation and Policy 1.9 1.9 Development c. Benefit Monitoring and Evaluation 15 1.5 Subtotal 3.6 1.7 1.9 Taxes and Duties 1.7 1.7 Contingencies 6.2 1.9 2.4 1.2 0.7 Total Project Cost 58.8 19.0 21.7 11.7 6.4 Page 44 Annex 4 PHILIPPINES Early Childhood Development Project Economic Analysis A. FISCAL IMPACT/COST RECOVERY Unit Costs With and Without the Project The large majority of inputs for project subcomponents funded through the national departments are investment rather than recurrent costs. Future capital costs are insignificant. At the national agency level, annual recurrent costs at the end of the project are for materials, supplies, operations, and maintenance of equipment supplied to the 13 provinces in the three regions, amounting toP-2.6 million per year (Table 2). These costs fall under various subcomponents including Child Survival (cold chain repair and maintenance), Micronutrients and Food Fortification (iron supplements, food fortification IEC materials), Communications (materials and supplies, repair and maintenance of equipment), Planning, Targeting, and MIS (software upgrades, repair and maintenance of equipment, communications), and Institutional Development (supplies, communications). At the local government level, end-of-project recurrent costs consist of food supplements and caregiver incentives, and are estimated at P-78.6 million spread over the participating LGUs, or less than 7.5 pesos per capita. The amount of annual recurrent costs will vary by LGU according to the level and type of services provided, which largely will be determined by population size and the discretion of the autonomous LGUs. Table 2. Annual End of Project Recurrenit Costs Cost Component Level of Government Annual Recurrent Cost in 2003 (P millions) Material and Supplies NG 0.8 Operations and Maintenance NG 1.8 Food Supplements LGUs 34.6 Caregiver Incentives LGUs 44 Total Annual Costs NG & LGUs 81.2 Pricing Policy With and Without the Project Project support that will strengthen programs in all of the provinces in the three regions, particularly child survival programs (EPI, CDD, ARI) and early education (8 week early education curriculum in Grade 1) will be provided with public financing with no cost recovery or user fees to offset the costs of government provision. Historically, it has long been recognized in the Philippines that there are large public benefits associated with the consumption of these mixed public/private goods. ;Because of the large public benefits Page 45 Annex 4 Page 2 of 18 obtained from the control of contagious diseases and early education, the project does not propose to alter this policy with cost recovery schemes. Project components funded through LGU sub-projects include the provision of food supplements, day care services and parent effectiveness services (PES). Food supplements will be provided at the local level to severely malnourished children in targeted poor rural areas of the Philippines. Equity criteria for provision of food and nourishment should override any consideration of cost recovery for the provision of these goods which are essential for basic survival. Day care services and PES likely are mixed public/private goods, but public benefits are not well proven. As near private goods, cost recovery may be economically justified in combination with some level of public subsidy. There is little, if any, documentation on cost recovery or fees for day care services in the P'hilippines.1 An important equity issue for day care that needs to be addressed is whether poor working rnothers should be expected to pay. Based on cost recovery experiences for day care, the project will develop and test pilot schemes in conjunction with project LGUs. IPES is an existing program designed to train parents to provide appropriate child stimulation, and the project will support training of CDWs to provide the training to parents. Although PES training is a private good, the program is still a new experimental program. Once the technical issues for providing PES are resolved and adequate IEC promotes the benefits of the training, pilot testing of fees for the iraining can be developed for cost recovery. Like day care fees, however, the decision to implement any cost recovery scheme will remain the prerogative of each autonomous LGU. Can the Government Afford it? Can the national government (NG) line departments and the LGUs afford the annual recurrent project costs in a sustained manner beyond the life of the project? The question needs to be addressed at the two levels of government involved in the project because the NG agencies have distinctly different activities than the autonomous LGUs and, therefore, different post-project financial responsibilities for sustainability. Can the national departments afford it? The NG stakeholders in the ECD project include DSWD, DOH, and DECS. All have compelling motivation to sustain project investments and programs. DSWD will benefit through substantial strengthening of the department and extension of its programs and activities. The project will provide critical strengthening of key DOH national programs for child survival, micronutrients and food fortification, which are highly visible and closely monitored by Congress and the media. DECS will benefit through investment in additional pre-school inputs, which has been a major policy concern and priority. An analysis of the fiscal impact and sustainability of the project's investments at the national agency level shows them to be easily sustainable from expected future national department budgets (Table 3). Because of the overwhelming proportion of investment costs and minimal end-of-project recurrent costs for NG project components, recurrent costs for national level departments beyond the life of the project are minimal. Total annual end of project recurrent costs for the national departnents amount tol22.6 million per year, or less than one one-hundredth of one percent (.01 percent) of the national departments' combined annual I A study of cost recovery schemes for ECD activities funded by UNICEF to describe the cost recovery experiences in the Philippines for day care was not yet available at the time of this report. Page 46 Annex 4 Page 3 of 18 recurrent budgets in 2003 (about -82 billion). The executing agency, DSWD, has the largest share of NG recurrent project costs (R 1.4 million, or 25 percent of the total) and the smallest recurrent budget ( 1,777 million), yet recurrent end-of-project costs represent less than one-tenth of one percent (.08 percent) of its annual recurrent budget. The national level components also are expected to be institutionally sustainable given the strengthening of management capacity included in Component 2 of the project. Table 3. Annual End of Project Recurrent Costs by NG Agency National Annual End-of-Project | Annual Recurrent | Percent of Government Recurrent Cost, 2003 Budget, 2003 (P Recurrent Agency (P millions) million<, Budget DSWD 1.4 1,777 0.08% DOH 0.7 10,851 0.01% DECS 0.5 70,213 0.01% Total 2.6 812,841 82843.6 Can the LGUs afford it? A study of the affordability of the LGU sub-projects was carried out at project preparation.1 The analysis is based on a sample of 94 municipalities, and examines the capacity of LGU discretionary resources to finance the ECD interventions. There are three sources of income for LGUs:, namely, local source revenue, the internal revenue allotment (IRA) from the national government, and other receipts. The elasticity of local source revenue (the ratio of growth rate of local source revenue to the growth rate of GNP) in 1994 is projected to increase by 0.05 due to changes in tax rates and changes in real property values. This elasticity is used to forecast local source revenue based on the Bank's projections of the nominal GNP growth rate. The projected elasticity of local source revenue is calibrated to fall in the range of 0.85 to 1.10. It is implicitly assumed that the LGU tax base is growing at the same rate as aggregate GNP. Projections of the IRA for each LGU are based on projected levels of the aggregate IRA and the government's IRA distribution model. Estimates of aggregate IRA are based on projected BIR revenues from the Bank's Medium Term Projections. Other receipts are assumed to grow at the same rate as nominal GNP after adjustments are made for extraordinary receipts like loan proceeds and proceeds from sales of capital assets. LGU expenditure levels. Projected LGU expenditures in 1995-2005 are estimated to grow at the same rate as total LGU revenue. Total LGU expenditures in 1995 is calibrated such that overall LGU fiscal position would not be smaller than zero or larger than 10 percent of its total revenue, however. Thus, if any LGU posted a fiscal deficit in 1994, its 1995 total expenditure is calibrated to equal its 1995 total revenue (i.e., the LGU's fiscal position is assumed to be balanced in 1995). Total expenditure in other years is projected in the same manner as before. Similarly, if an LGU registered a surplus in 1994 which is larger than 10 percent of total income, its 1995 total expenditure is set at a level which made the 1995 surplus to equal 10 percent of 1995 total income. The implicit assumption here is that LGUs spend (obligate) whatever resources are available in any year after providing for a reasonable/comfortable level of reserve. That is, the aggregate level of expenditures each LGU is largely driven by the amount of receipts/revenues it generates. From time to time, certain LGUs will register larger than normal surplus in anticipation of large expenditure items in the next year. Alternatively, some LGUs will post deficits. Unlike the national government, LGUs which do incur deficits take corrective measures very quickly so that their deficits do not persist, because there is a legal mandate which does not allow LGUs to incur deficits. 1 Manason and Alano (1997). Page 47 Annex 4 Page 4 of 18 Projected social sector expenditures in 1995-2005 are estimated assuming the sector expenditure shares prevailing in 1994 are maintained in future years. "Normal" expenditure levels in 1998-2000 are estimated assuming that the 1997 projected expenditure levels derived above will be maintained in real per capita terns. That is, normal expenditures represent the amount LGUs will spend on specified items if they were to sustain their 1997 expenditure levels in real per capita terms (i.e., 1997 expenditure levels were adjusted for inflation and population growth). National average inflation rate projections are used, but population growth rates are specific to the LGUs under study. Because 1997 is the last year before the start of the ECD project, the analysis implicitly assumes that local executives will not deviate from the expenditure patterns previously committed. LGU discretionary income. The amount of discretionary resources are estimated as the difference between actual/projected LGU expenditure and "normal" expenditure level. "Total discretionary resources" is the amount of funds that LGUs have at their disposal (the maximum after making provisions for existing service levels overall) for ECD interventions assuming that the LGUs are willing to undertake inter-sectoral budget restructuring (i.e., re-allocate a bigger portion of their total discretionary resources to ECD). "Social service discretionary resource" represents the amount of additional resources that LGUs are willing to spend on social services in the aggregate after providing for prevailing service levels in 1997. In principle, this amount wvill be available for ECD if the LGU is willing to undertake intra-sectoral budget restructuring (i.e., spend a larger portion of their social service discretionary resources on ECD). "Basic social service discretionary resource" indicates the amount that LGUs would have at their disposal for ECD interventions assuming that tihey undertake very limited budget restructuring. LGU affordability results. The analysis compared the LGU discretionary resource levels with the costs of the LGU ECD sub-projects. The costs of the LGU sub-projects in this analysis initially are defined as total costs, i.e., all investment and recurrent costs are included. The results indicate that all LGUs in the sample except one would have sufficient resources to allocate to ECD activities while maintaining their present service levels (93 LGUs have a surplus in total discretionary resources even after deducting ECD financing requirements Although the number of LGUs with budget deficits increases as one moves down the hierarchy towards increasingly focused discretionary resources, the deficits are predicted only during the first year. When LGUs are classified by income class, the number of LGUs with first year deficits is sensitive to the phasing of LGU participation. For LGUs that begin participating in year 1 of the project, the number of LGUs with first year deficits is largest among the poorer income classes. For LGUs that are phased into the program beyond 1998, however, no budget deficits are predicted even for LGUs in the low income class. This result largely is due to a sharp increase in BIR collections in 1996 which will cause a similar increase in IRA transfers to LGUs three years later (1999), providing LGUs with what amounts to windfall discretionary resources in that year. The appearance of first year deficits, particularly among the low income municipalities, suggests first-year 4'sunk" investment costs are beyond the financial affordability of many LGUs. The project will adopt a cost-sharing scheme between the national government and the LGUs where the NG will provide matching grants to LGUs, to enhance affordability and promote equity. A cost-sharing scheme that takes account of the LGU fiscal capacity and its ECD service gaps will be instituted and designed so that investment costs are financed largely through grants, and recurrent costs are financed through combination of LGU loans and equity contributions. Financing of LGU sub-projects will be for a period of 3 years, after which LGUs are expected to shoulder the full recurrent operating cost of maintaining the services. The cost-sharing scheme will be administered through the Municipal Development Fund Page 48 Annex 4 Page 5 of 18 (MDF). If preferred, LGUs will be allowed to finance their portion of project costs entirely through equity contributions in lieu of loans through the MDF. The LGU cost-sharing scheme is presented in Table 4. Table 4. LGU Cost-Sharing S,cheme WU income class Percent urant Percent Loan Percent Lquity 1 st Class 40 30 30 2nd - 3rd Class 60 20 20 4th - 6th Class 80 10 10 If the national government assumes the investment costs the affoirdability of the project for LGUs is significantly increased. First year deficits are observed only among low income municipalities which are phased into the project in 1998 and only when the financing source consists of discretionary resources focused on basic social services. Using a progressive cost sharing scheme, where the NG share increases as LGU income decreases, no budget deficits are predicted. The results of the study suggest the project is affordable and sustainable for LGUs, particularly because the project implementation schedule has been adjusted begin phasing in LGU sub-projects in year 2 (1999) of the project, thus avoiding the possibility of LGU budget deficits in year 1 (1998) of the project. All LGUs will begin their sub-projects in 1999 or later, and the timing allows them to allocate an expected IRA increase to finance project costs. Progressive matching grants from the national government to LGUs that cover initial investment costs and decrease the financial burden to the lowest income LGUs also improves project affordability. In addition, the burden of recurrent costs per capita for LGUs is relatively small, about one-half of one percent, when compared to annual LGU income per capita (Table 5). Are the LGUs Willing to Pay? Because the LGUs appear to have the necessary discretionary income for the project only is an indication of ability to pay, not willingness to pay project costs, however. Ample discretionary income is a necessary, but not a sufficient condition of LGU participation and sustainability. Simple affordability only implies the ability to dedicate discretionary income to this project in lieu of any other incremental services, not de facto evidence of willingness to participate in the project. The LGUs are autonomous governmental units and ultimately must be convinced of the merits of the project, their obligation according to the local government code to provide these services in the decentralized system, and the NG benefits that they will receive from participation in the project. In this regard, NG matching grants and project support that provides social marketing, IEC, MIS, planning, and institutional development provide additional incentives for LGU participation. To give an indication of how municipalities allocate additional revenue to competing demands for municipal services, social sector expenditure patterns were examined and an analysis of the marginal propensity to spend (MPS) on social sector services was conducted for a sample of 163 municipalities drawn from Regions 5, 6, 7, 10, 11 and 12. Page 49 Annex 4 Page 6 of 18 Table 5. Annual End-of-Project LGU Income and Recurrent Cost per Capita,,I Average Annual Average Annual End-of- End-of-Project Project Income per Recurrent Cost Per Percent of LGUs by Income Class Capita (Pesos)b Capita (Pesos) Annual Income 2nd - 3rd Income Class 1230 7.5 0.61% 4th - 6th Income Class 1230 7.5 0.62% Overall 1209 7.5 0.62% a/ based on a sample of 163 municipalities in 1997 pesos b/ Source: Manasan and Alano, 1997 Figures 1-4 illustrate the relationship between municipal revenue per capita and expenditures per capita fcir i) all social sector services (Figure 1); ii) health, education, and population (Figure 2); iii) basic education (Figure 3); and iv) social welfare services (Figure 4). Municipal expenditures and revenues are converted to per capita terms to control for differences in population across the 163 municipalities. The scatter-plots of these relationships suggests there is a positive relationship between municipal revenue per capita and each of the social sector expenditure categories. That is, municipalities with higher per capita revenue spend more per capita on social sector services than municipalities with lower per capita revenue. This suggests that municipalities will spend more per capita for social sector services as real revenues increase in the future. This hypotheses is tested by an estimation of the marginal propensity to spend for social services. Marginal propensity to spend for social sector services. An estimation of the marginal propensity to spend (MPS) is based on OLS regressions of 1997 municipal social sector expenditure per capita on municipal revenue per capita. Per capita expenditures and revenue were used in the regressions to control for municipal population size. Separate regressions were used for four expenditure categories: i) all social sector services expenditures; ii) health, nutrition, and population expenditures; iii) basic education expenditures; and iv) social welfare expenditures. Municipal revenue per capita was used as the independent variable in each regression. The results of the regressions are shown in Table 6. Page 50 Annex 4 Page 7 of 18 Figure 1. Municipal Social Sector Expenditure per Capita and Rewvenue per Capita, Philippines 1997 450 40. QM30 CL ,-300 l l .250m ,1CO i! 0 0 o 150 1 0 200 400 600 Boo IODO 1200 1400 1600 1800 2000 niidpal FL-venue per capita Table 6: OLS Regression Results for Marginal Propensity to Spend for Municipal Social Sector Services Dependent Variables - Expenditures|ll p er Capita (nesos) b Constant Coefficient t-statistic R-sauare IAll Social Sector Services l -19.99 | 0.23 |27.29 r0.82 | lHealth, Nutrition and Population | -11.57 l 0.14 l21.98 l 0.75 l |Basic Education | -17.24 l 0.07 l10.96 l 0.68 l IScial Welfare Services 8.82 0.02 7.49 I 0.43 a/ Based on a sample of 163 municipalities from Regions 5, 6, 7, 10, 11, 12 b/ The independent variable in each regression is municipal revenue per capita The regression results indicate that the MPS for all social sector services is 0.23, health, nutrition, and population is 0.14, basic education is 0.07, and social welfare services is .02. The results suggest that when municipalities receive additional revenue that is not earrnarked fc,r specific municipal services, then 23 percent will be spent on social sector services. In other words, 23 centavos of every additional peso of revenue will be spent on social sector services. Of this amount, 14 centavos will be spent on health, nutrition, and population services; 7 centavos will be spent on basic education services; and 2 centavos will be spent on social welfare services. Taken together with the affordability analysis, the MPS results indicate a strong argument can be made that the project LGUs will sustain the ECD program by committing the necessary resources to cover Page 51 Annex 4 Page 8 of 18 recurrent costs beyond the life of the project. Not only is the project affordable, that is, LGUs will have available the 6.5 pesos per capita necessary to sustain the project, but it also appears that LGUs are willing to commit these pesos to the social sector. Other indications of LGU willingness to pay for social sector services. There are two other arguments which suggest there is sufficient LGU willingness to pay project costs and sustain project activities beyond the three-year LGU sub-project time period. First, participation in the project is not restricted to an "all or nothing" proposition. LGUs will be given a menu of ECD activities and costs from which to choose with, perhaps, some minimum level of services required. Each LGU will determine whether to participate and, if so, the type and level of services and expenditures in line with their ability and willingness to pay. In this sense, all LGUs that participate presumably will choose a level of expenditures that is both affordable and sustainable. A list of alternative LGUs have been identified to replace LGUs which choose not to participate in the project. Alternative LGUs will be tapped until the project quota of LGUs is filled. Second, consultations held in May 1997 with officials from the ECD targeted LGUs clearly demonstrated a very high level of willingness to participate in the project, and resulted in signed endorsements of the project by governors, city and municipal mayors, vice mayors, provincial board members, and city and municipal council members. In addition, institutional sustainability of the LGU sulb-project will be addressed through the inputs included under Component 2 of the project. B. COST-EFFECTIVENESS AND COST-BENEFIT ANALYSIS In 1994, the Profiles project developed a nutrition simulation model based on results found in the international literature and modified for the conditions in the Philippines, to examine the relationships between the nutritional status of young children and lower death and disease rates, lower health expenditures, lower rates of mental retardation, higher labor productivity in agriculture, and increased future earnings. 1 More recently, during project preparation, traditional cost-effectiveness analysis (CEA) and cost-benefit analysis (CBA) of project inputs were used to build on the Profiles earlier work. The results of these studies indicate the delivery of health, nutrition and early education inputs from this project will be highly cost-effective, and combine in ways that strengthen the links between child health, education and economic returns. Investing in the health and education of children increases a country's overall standard of living by building human resources that generate higher economic returns, reduce social costs, and increase the efficiency of other investments. Early childhood development interventions improve school attendance and performance, increasing children's prospects for higher productivity and future income. Additionally, these interventions will reduce the likelihood that children will become burdens on public health and social service budgets. Mothers also are helped by project investments. Health and Nutrition IProfiles-Philippines nutrition status simulations. Six sets of relationships were simulated by the Profiles-Philippines model in 1994. The effects of: i) reduction in PEM on infant and child deaths; ii) reduction in PEM on infant and child morbidity; iii) reduction in iodine deficiency on the number of mentally deficient children born; iv) reduction in anemia on agricultural productivity; v) reduction of iiodine deficiency on malnutrition-induced mortality and stunting and future earnings; and vi) reduction in imalnutrition-induced acute respiratory infections, diarrhea, and blindness on infant and child morbidity and government health expenditures were each examined. The annual benefits of improved nutrition in The Profiles project was carried out by the Academy for Educational Development. See Heaver and Hunt (1995) for details of the model and the assumptions made for the Philippines. Page 52 Annex 4 Page 9 of 18 peso and dollar terms on agricultural productivity, increased earnings and savings in health expenditures from the model simulations for 1999 summarized in Table 7 are substantial. Table 7. Profiles - Philippines Estimates of Annual Earnings and Savings from Improvements in Nutrition, Philippines 1999 Pesos (mllions) (mi iions Earnings from increased agricultural productivity due to a 50 percent reduction in anemia 1340 48 Future earnings from decreased mortality and stunting due to a 50 percent decrease in iodine deficiency 8400-1900 300-700 Savings in health expenditures from a 50 percent decrease in malnutrition-related diarrhea, blindness, and acutre respiratory infections 168-672 6-16 Source: Heaver and Hunt (1995) Cost-effectiveness analysis. Using CEA, the economic worthiness of the project's health and nutrition investments to increase coverage for child survival (EPI, CDD, ARI) and micronutrient supplementation was examined during project preparation.1 The integrated project approach for providing these inputs at the point of delivery leads to significant efficiency gains in the cost per disease prevented. Using Disability Adjusted Life Years (DALYs) as the measure of the burden of disease that can be prevented by the project's health and nutrition inputs, the results indicate the project vwill correctly invest in the programs which have the largest burden of disease and the lowest cost per DALY saved when compared to alternatives such as malaria and schistosomiasis control. In addition, the selected integrated health and nutrition investments are shown to be more cost-effective than the current health and nutrition investment profile that essentially relies on vertical and semi-vertical delivery systems. Current health care and nutrition compared to the integrated ECD package of these services. Integration of these services improves the coverage of the service package because any contact between service providers and the mother-baby can be used as an opportunity to provide the maximum number of services, saving time to the beneficiary. Such contacts may occur at the day care center, health center and in the home through outreach activities. In other words, the increase in the number and location of providing an integrated service to the mother and child positively affects the child's growth and development. Additionally, by locating the delivery places close-by, as in a central shopping area, beneficiaries will save time. A mother looking for a diarrhea treatment could also get nutritional counsel, micronutrients and other services allowing the beneficiaries to save time and transportation costs. Additionally, ECD interventions have synergistic qualities, for example, the rate of recovery from measles is enhanced by Vitamin A supplementation, and achieving the full benefits in terms of physical and intellectual growth of other interventions may depend on concomitant nutritional improvement and enhanced psycho-social stimulation.2 Cost of health and nutrition components. Table 8 presents comparisons of coverage and costs per participant for project interventions. Coverage levels in 1994 are compared to target coverage for 2005, and cost per participant are given for WDR 1993 for international comparisons, the current system, and Vargas (1996). 2 World Bank, 1996. PIN FLASH Issue 111, Page 53 Annex 4 Page 10 of 18 under the project. The costs of the project interventions are in line with average costs for other developing countries. PEM is well below current costs because of new innovations in the program including better targeting and provision of weaning foods for infants. Measure of effectiveness for health and nutrition investments. Project benefits are expressed in DALYs, the measure used in the 1993 World Development Report: Investing in Health, and represents one year of good health.1 The years of life gained by the health and nutrition interventions provide reference points for the project's effectiveness. The magnitude of the problem addressed by the interventions can be expressed as the burden of diseases and years of life lost. Estimates of the burden of diseases in the Philippines that can be prevented by the project health and nutrition components are from the Profiles model and are shown in Table 9. C'ost-effectiveness results for health and nutrition investments. The cost of saving one year of life, by health and nutrition intervention, are presented in Table 10. Cost per DALY from the 1993 WDR are presented as international reference points. Costs per DALY and wage gains under the current system are compared to the cost of saving one year of life per project intervention. The cost per year of life saved is calculated by dividing the number of years of life that can be saved by the project into the incremental costs of the project (i.e., the cost of the project inputs minus the costs under the current system). The DALYs are converted into the potential years of life saved by multiplying the incremental coverage (target coverage minus the current coverage) and then adjusting by program effectiveness. Table 8. Health and Nutrition Coverage and Cost per Participant Cost per Cost per Cost per 1994 2005 Target Participant, Participant, Participant, Coverage Coverage 1993 WDR Current ECD Project Intervention (percent) (percent) (US$1993) (US$1994) (US$ 1996) Health Care ARI & CDD 50 80 9 1 3 EPI 77 100 14 11 13 Nutrition Vitamin A 72 80 0.25 0.03 0.04 Iodine 19 80 0.5 0.01 0.13 Iron 5 80 2 0.13 0.14 PEM 14 80 2-25 24 2.68 Source: Vargas A number of papers have calculated the DALYs (or related measures) gained by health interventions. See, for example, Shepard et al. (1985), Stansfield and Shepard (1993), Jamison et al. (1993), and Bobadilla et al. (1994). Annex 4 Page 54 Page 11 of 18 Table 9. Health and Nutrition DALYs L)ALYS (years ot lite lost due to Project Intervention mortality and morbidity) Health Care ARI & CDD 420,000 EPI 271,000 Nutrition Vitamin A 32,000 Iodine 285,000 Iron 206,000 PEM 383,000 Source: Vargas (1996) Table 10. Cost-effectiveness and Future Returns of Health and Nutrition Interventions Cost per Cost per Cost per Wage DALY, 1993 DALY, DALY, ECD Gains, Wage Gains, WDR Current Project Current ECD Project Intervention (US$1993) (US$ 1994) (US$1993) (P millions) (P millions) Health Care ARI & CDD 30-50 35 83 3,090 1,956 EPI 12-17 97 119 3,755 1,186 Nutrition 20 Vitamin A 9-3 15 7.89 28 3 Iodine 18-37 3.24 10 1,027 4,382 Iron 13 9 64 7 185 PEM 24-63 N/A 2-25 1,128 22,587 Source: Vargas The results indicate that large gains can be made through the provision of a limlited set of project health and nutrition interventions. Relatively modest costs per participant will provide large returns in the future. The wage gains from health and nutrition are for children who are saved by the interventions. The net present value of wage gains under the current system are about P29 billion, and with the project increase to about P30 billion. Early Childhood Education While it is recognized in the Philippines that basic education is a basic need, the 1987 Constitution and subsequent pieces of legislation implicitly define basic education as covering only elementary and high school, the two levels for which the national government assumes responsibility. Early childhood education (ECE) is considered the choice of the family. Public day care centers are by law supposed to be provided in every barangay by LGUs, and the expansion of the day care centers has been steadily on the increase but not fast enough to respond to the need, especially in poor rural LGUs. Page 55 Annex 4 Page ~~~~~~~~~~ ~Page12 of 18 The effect of early (pre-school) childhood education. On a population basis, the aggregate gains from the pre-school components of the project will depend on the number of children who receive pre-school education from the project, the transition probability from pre-school to Grade 1, and the transition probabilities to higher grades. That is, the greater the number of children who benefit from receiving pre- school education from the project, the greater the number who will enter Grade 1, and the greater the number who will proceed to higher grades. In the Philippines, however, Grade I enrollment is virtually universal and, for the purposes of the analysis, Grade I enrollment is assumed for all children. The p.roblem being addressed by the project, and where anticipated benefits will occur, is in the transition probabilities from Grade I to higher grades. Previous studies in the Philippines indicate strong evidence that participation in pre-school programs reduces the probability that the child will drop out of elementary school, and children form the poorest households and the children of farmers are most likely to drop out. Pre-school education reduces the disparity in drop-out behavior across wealth groups.l In addition, it is clear that integrated interventions of health, nutrition and early education significantly increase attendance rates and improve academic achievement. There also is clear evidence that improved academic and productivity outcomes resulting fiom early interventions is greatest for children aged three to six, the target group for the project's early education inputs. Increased attendance rates and academic achievement lead to future productivity gains for the child, and can be measured by increased future earnings from: i) the gains from averting child death; ii) the gain from avoiding permanent disability; and iii) the gain from increasing child readiness for school that result in lower dropout rates. This approach essentially would integrate the costs of health, nutrition and early education inputs and links them with a common measure of future productivity measured in terms of increased future earnings. The studies conducted during project preparation separately calculated wage gains from health, nutrition, and early education inputs and concluded that large gains in future wages would be obtained from all of these investments, and largest for early education inputs. During the 1970s to the mid-1980s, for every 100 children entering grade 1, 66 finished grade 6, and 41 finished high school. More recently, the cohort survival rate has not improved by much. In 1995-96, only 67.5 students finished elementary school and 47.5 finished high school for every 100 grade I entrants.2 IThe major hurdle in attendance rates appears to be between grade I to grade 2. Only about 86 percent of grade I entrants move on to grade 2 the following year. From grade 2 onwards, however, transition rates are in the order of 90 percent or higher. The effect of an increase in the grade I to grade 2 transition rate to 95 percent would increase the elementary school completion rate by 7 percent (to 73 percent), and the high school completion rate by 4 percent.3 ECE Costs. Costs of ECE project inputs and assumptions for the economic life of assets are shown in Table 11. The estimated annual cost per beneficiary by ECE project component, with annualized investment inputs at different discount rates are given in Table 12. In 1996, the cost of direct schooling in the Philippines was P-2,764 per student per year for elementary school, and P-2,742 per student per year for high school.4 The annual cost per child for the DCW is of the same order of magnitude as for elementary aLnd high school. The relatively lower cost of the CDW is due to the absence of civil works, as the CDW is not center-based and only will conduct home visits. Mingat and Tan (1995). 2 DECS (1997). Alonzo (1989). DECS (1997). Page 56 ~~~~~~~Annex 4 Page 56 Page 13 of 18 Table 11. ECE Project Costs by Type Caregiver Cost Item CDW DCW Asset Life Investment Cost New Construction 0 200,000 10 Upgrading 0 50,000 10 Equipment 3,900 22,725 5 Furniture 0 51,500 5 Supplies 11,293 11,042 3 Seed Money, Food Coop 5,000 0 Training 20,000 20,000 5 Total Investment Cost 40,193 355,267 Recurrent Cost Caregiver Incentives (incl travel) 16,000 45,500 Supplies 26,131 1,300 Total Recurrent Cost Beneficiaries Number per caregiver 50 40 Age Group 2mos < 3 yrs 3yrs - 5 yrs Source: Alonzo and Bautista (1997). Table 12. ECE Annual Costs per Child, by Discount Rate CDW DCW Discount Rate (percent) (annual pesos per beneficiary) (annual pesos per beneficiary) 10 1,076 2,542 12 1,087 2,610 15 1,104 2,759 Source: Alonzo and Bautista (1997) ECE benefits. The economic benefits from the project's early education program consist of: i) benefits from increased schooling; ii) savings of mother's time; and iii) benefits from enhanced child ability. The measurement of benefits form increased schooling involves calculation of the increase in education survival probabilities, measurement of the value of additional schooling, and the net return to additional schooling after adjustment for direct costs and foregone productivity and earnings while in school. The measurement of project benefits takes into account the fact that the target beneficiaries of the project are economically and socially disadvantaged segments of the Philippine population whose educational performance is likely to be below the average because of a combination of poor pre-natal to post-natal conditions, coupled with disadvantaged early childhood circumstances. Without the project, beneficiaries would have only a 65 percent chance of moving from grade 1 to grade 2, and 80 percent chance of moving Page 57 Annex 4 Page ~~~~~~~~~ ~Page14 ofi18 from grade 2 to grade 3, and an 85 percent chance of moving from grade 3 to grade 4, with the transition probabilities normalizing thereafter. With the ECE project components that include the CDW and DCW inputs, the likelihood of the child completing elementary school is expected to increase to 69 percent, and increase the odds of completing high school to 43 percent (Table 13). A prior study based on 1988 cross- section data confirmed the positive effects of preschool education on school participation in the Philippines, with beneficiaries found to be much less likely to drop out after grade 1. Table 13. Cohort Survival Rates With and Without the Project Without Project With Project Year Year to Year From Grade 1 Year to Year From Grade 1 Grade 1 1.000 1.000 1.000 1.000 Grade 2 0.650 0.65 0.900 0.900 Grade 3 0.800 0.520 0.900 0.810 Grade 4 0.850 0.442 0.950 0.770 Grade 5 0.950 0.420 0.950 0.731 Grade 6 0.950 0.399 0.950 0.694 High Schooll 0.850 0.339 0.850 0.590 HighSchool2 0.900 0.305 0.900 0.531 High School 3 0.900 0.275 0.900 0.478 High School 4 0.900 0.247 0.900 0.430 College 0.600 0.148 0.600 0.258 Returns to schooling. The value of the additional schooling is estimated using estimated earnings functions from a recent study which used data on individual workers from the 1988 NSO labor force survey.2 The results were used to construct age-education-earnings streams for males and females. Internal rates of return are calculated after adjusting for direct and indirect costs of schooling. Indirect costs are defined as foregone earnings or productivity from home or non-market work. These indirect costs are assumed to be only 25 percent of the predicted contributions if the person was not in school. This reflects part-time wage rates for work at home or in the market, and reflects higher unemployment rates in young age groups. The estimated social rates of return to schooling in the Philippines, and earlier estimates for comparisons, are shown in Table 14.3 Mingat and Tan (1995). 2 Alonzo, Horton and Nayar (1996). 3 These estimates are social (economic) rates of return as they include all costs including subsidies from the govemment. Page 58 Annex 4 Table 14. Internal Rates of Return to Schooling Elementary School versus some, or no, High Schiool versus College versus elementary school elementary school high school (percent) (percent) (percent) Social Rates of Return - 1996 Men 16.1 19.3 20.0 Women 21.9 17.6 16.2 Rates of Return - 1998a/ Private 18.2 13.8 14.0 Social 11.9 12.9 13.3 a/ Tan and Paqueo (1988) Source: Alonzo and Bautista The 1997 social rates of return indicate the payoff to completing elementary school is higher for women than for men, while the reverse is true for completion of high school and college. The rates are higher that the 15 percent "hurdle" rate (social opportunity cost of capital) the Philippine government uses to evaluate "hard" economic projects. Value of mother's time. The age-earnings profiles also are used to predict earnings streams at different age and education levels for the value of mother's time released with the project for more productive activities at home or in the market. Earnings (or productivity for non-market work) of the participating mothers are estimated as the educational attainment, weighted average for women in the age group 22-31 for those with infants in the first year of the project, women in age giroup 23-32 for those with 2 year-olds at the start of the project, and so on up to age group 27-36. Women who have completed college are excluded from the estimation. It is assumed that these women woulld have the willingness and ability to pay for private preschool. Table 15 gives the estimated values of mother's time for different age groups and education levels. Page 59 Annex 4 Page 59 ~~~~~~~~Page16 of 18 Table 15. Value of Mother's Time by Age and Education (Annual Pesos in 1996) Mother's Age Group l Distribution Education (percent) 22-31 23-32 24-33 25-34 26-35 27-36 Elementary Some 14.1 12216 12479 12731 12970 13196 13408 Complete 24 14787 15105 15410 15700 15973 16230 Hligh School Some 14.1 21407 21868 22309 22729 23125 23497 Complete 28.4 23377 23880 24362 24820 25252 25658 College Some 19.4 34874 35625 36343 37026 37672 38278 WVeighted Average I _ _ 216981 221651 22612 23037 23439 23816 Source: Alonzo and Bautista (1997) Enhanced child ability. Quality early childhood education is expected to raise the ability of the child. There is growing evidence that much of a person's ability is determined in the early years, even before formal schooling begins. For the Philippines, Tan and Mingat (1996) note positive effects of early education on scholastic achievement, although ability is not measured directly. Much more difficult to document is the effect of enhanced ability on earnings and productivity. Selowsky (1981), in a study of early child development in Chile, isolates the effects of early childhood interventions on the increase in earnings for a given level of schooling from the benefits accruing to additional schooling. The results suggest investment in an early childhood intervention program is justified if a change of one standard deviation in the level of child ability costs 37 to 50 percent of the annual earnings of an illiterate Chilean worker. In the absence of empirical evidence for the Philippines relating preschool human capital investments to increased ability and increased earnings, project benefits are assumed to be 10 percent of the present value of lifetime earnings. ECE cost-benefit results. Table 16 presents the projected flows of costs and benefits per child for the project's CDW and DCW components. This costs and benefits are computed using a 15 percent discount factor, and a savings in mother's time of 25 percent of predicted earnings. Child participation begins shortly after birth, as the CDW makes home visits and interacts with the parents and the child. The annual cost associated with the CDW services is relatively low because there is no building construction or upgrading. The child moves on to the more expensive center-based DCW care after three years of the home-based CDW program. Page 60 Annex 4 Page 17 of 18 Table 16. Projected ECE Cost and Benefit Flows (annual pesos per child) Age Group Female Male Value of Value of Value of Value of Direct Additional Mothees Direct Additional Mother's Cost Schooling Time Total Cost Schooling Time Total 0-1 (1,044) (1044) (1044) (1 ,044 1-2 (1,044) (1044) (1044) (1,044 2-3 (1,044) (1044) (1044) (1,044 3-4 (2759) 5759 3,000 (2,759) 5,759 3,000 4-5 (2.759) 5860 3,100 (2,759) 5,860 3,100 5-6 (2,759) 155 5954 3,349 (2,759) 1,412 5,954 4,607 6-7 7-8 8-9 9-10 10-11 11-12 1748 1,748 925 925 12-13 13-14 14-15 15-16 4896 4,896 1,243 1,243 NPV (6,639) 917 8780 3,058 (6,639) 916 8,780 3,058 Source: Alonzo and Bautista (1997) The economic value of enhanced survival probabilities in the formal schooling system (Value of Additional Schooling), the values represent the incremental NPVs of moving to a higher level of school. For example, the P155 for age 5-6 for females is the NPV, discounted at 15 percent and calculated for children aged 5-6, of the expected gains of finishing elementary school versus stopping before completion, after deducting the direct cost of schooling and foregone producitivity or earnings. The discounted incremental net cash flow accruing to the investment in additional schooling is multiplied by the increased probability of survival with project ECE inputs. For high school versus elementary school, the NPV is calculated at elementary school completion, age 11-12. The NPVs are all positive, indicating the internal rates of return are higher than the 15 percent discount rate. No savings of mother's time is realized in the first three years, as the CDW moves from house to house, and the child mainly is still under the mother's care. The mothers are, in fact, expected to participate in the project's parent education program, which is a subcomponent of the CDW package which integrates the parent-child development programs. When the child moves to the center-based DCW phase, the benefit value of the mother's time is realized. For example, the valueP5,759 for mother's time at age 3-4 is the product of the value of the mother's time at age 24-33 and the 25 percent deflation factor. The NPVs at the bottom of the table appear to be relatively low, because they are computed at the child's age 0-1. They are positive, however, and very similar for females and males. The gender differences are in the expected returns to additional schooling. The IRR for elementary school completion is higher among males, while the opposite is true for high school and college. The results also indicate that most of the measured benefits are from savings in mother's time, not from the value of the expected increase in earnings form additional schooling. Page 61 Annex 4 Page 18 of 18 Table 17 summarizes the results of the NPV calculations at different discount rates, where savings in rnother's time is imTputed at 25 percent average earnings. Included in the benefits is an estimate of increased productivity over the lifetime of the child from increased ability from the ECE project inputs (calculated at 10 percent of lifetime earnings). The results indicate the ability factor is higher for males than for females, as males have a higher income base to which the 10 percent mark-up applies. At higher discount rates, the share of the ability factor rises relative to that of the schooling factor. The quantification of costs and benefits of the project's ECE investments suggests that, even with conservative assumptions, the interventions pass the 15 percent rate of return test usually applied in the P'hilippines to "hard" economic development projects like roads and irrigation. That is, the ECE interventions are shown to be welfare improving. This the case even though some benefits from ECE which have not been quantified. These include the increase in benefits from the synergistic integration with project health and nutrition inputs discussed in the previous section. Other non-quantified benefits include expected decreases in child abuse and delinquency. The project includes CDW interaction with parents which is expected to reduce the incidence of child abuse. The expected increase in school participation will help decrease the number of out-of-school youth and the attendant social problems with children who either choose to drop-out or are dropped-out of the system. Table 17. ECE Cost - Benefit Results (annual pesos per child) Female Male Discount Rates Discount Rates Costs and Benefits 10 12 15 10 12 15 Direct Cost (7,424) (7072) (6,663) (7,424) (7,072) (6,663) Value of Additional Schooling 6,363 3,112 917 6,587 3,179 916 Value of Mother's Time 10,933 10,002 8,780 10,933 10,002 8,780 Value of Increased Ability 4,127 2,327 990 6,092 3,462 1,522 Net Present Value To Society 1,400 8,368 4,023 16,187 9,570 4,555 To Individuals 20,682 14,733 10,020 22,869 15,935 10,552 Source: Alonzo and Bautista (1997) Page 62 BIBLIOGRAPHY to Annex 4: Cost-Benefit Analysis Alonzo, R. P., 1989. Providing Basic Education for AlZ: Some Policy Perspectives. Submitted to the United Nations Children's Fund (UNICEF), Manila. Alonzo, R. P., Horton, S. and R. Nayar, 1996. Women in the Labor Market in the Philippines. Chapter 7 in Women and Industrialization in Asia, edited by S. Horton, London, Routledge. Alonzo, R. P., and Feny de los Angeles-Baustista, 1997. Meeting the Basic Learning Needs of Young Filipino Children: A Study on Public Investments in Early Childhood Education. Report submitted to UNICEF-Philippines and the PPT National ECD Project. Bobadilla, J. L., Cowley, P., Musgrove, P., and H. Saxenian, 1994. The Essential Package of Health Services in Developing Countries, Background Papers I, The World Bank. Department of Education, Culture, and Sports (DEC S), 1997. Facts and Figures on Philippine Education. Department of Social Welfare and Development, 1997. Proposed Early Child Development Project. Submitted for ICC Technical Review. Quezon City, Philippines. Heaver, Richard A. and Joseph M. Hunt, 1995. Improving Early Childhood Development: An Integrated Program for the Philippines. The World Bank, Washington, DC. Jamison, D. T., Mosley, W. H., Measham, A. R. and Bobadilla, J. L. eds, 1993. Disease Control Priorities for Developing Countries, New York: Oxford University Press for The World Bank. Lally, J. R. , Mangione, P. L. and Honig, A. S., 1988. The Syracuse University Family Development Research Program: Long-Range Impact of an Early Intervention with Low-Income Children and Their Families. In D. R. Powell (ed.) Parent Education in Early Childhood Intervention: Emerging Directions in Theory, Research and Practice. Norwood, N.J.: Ablex. Manason, R. G. and B. Alano, 1997. Affordability Analysis: Early Child Development Study, Initial Results. Report submitted to PPT for the ECD Project. Manason, R. G. and B. Alano, 1997. Analysts of the Fiscal Impact and Affordability of the Proposed Early Childhood Development Project. Report submitted to PPT for the ECD Project. Mingat, A. and J-P. Tan, 1995. Do Preschool Programs Improve Elementary School Outcomes? Evidence from the Philippines. The World Bank. Myers, Robert G., 1992. Early Childhood Development Programs in Latin America: Toward Definition of an Investment Strategy. Human Resources Division of Latin America and the Caribbean Technical Department. The World Bank. Shepard, D. S., Sanoh, L. ; and E. Coffi , E., 1996. Cost-Effectiveness of the Expanded Programme on Immunization in the Ivory Coast: A Preliminary Assessment. Social Science and Medicine, 22(3) 369-377. Page 63 .Selowsky, Marcelo, 1981. Nutrition, Health and Education: The Economic Significance of Complementarities atEarlyAge. Journal of Development Economics, Vol.9, pp. 331-346. Stansfield, S. and D. S. Shepard, 1993. Acute Respiratory Infections, in Disease Control Programs for Developing Countries, Jamison et al., eds, New York: Oxford University Press for The World Bank, pp. 67-90. Tan, J-P. and V. Paqueo, 1988. The Econonic Returns to Education in the Philippines, Washingtoni, D.C.: Asia Technical Department, The World Bank. van der Gaag, Jacques and J-P. Tan, 1997. The Benefits of Early Childhood Development Programs: An Econonmic Analysis. Draft. Vargas, Veronica, 1996: Cost-Effectiveness Study, Integrated Early Childhood Development Final Report, PPTA-PHI, Appendix 1. World Bank, 1993. The World Development Report. Investing in Health. Oxford University Press for The World Bank. New York. World Bank, 1995 East Asia and the Pacific. Guidelines for Economic Analysis in Project. East Asia and Pacific Region. World Bank, 1995. Philippines. Public Expenditure Managementfor Sustained and Equitable Growth. Country Operations Division, Country Department 1, East Asia and Pacific Region. World Bank, 1996. PHN FLASH, Issue 11. World Bank, 1996. Philippines: A Strategy to Fight Poverty. Country Operations Division, Country Department 1, East Asia and Pacific Region. World Bank, 1997. Project Appraisal Document on a Proposed Loan in the Amount of US$25 Million Equivalent to the Republic of the Philippines for an Early Childhood Development Project. Health, Nutrition and Population Sector Unit, East Asia and Pacific Region. Page 64 Annex 5 PHILIPPINES Early Childhood Development Project Financial Summary Years Ending June 30 (US$ Million, 1997 Base Year) Implementation Period Operational Period 1999 2000 2001 2002 2003 2004 Project Costs Investment Costs 6.1 10.3 12.2 14 7.7 5.6 Recurrent Costs 0.3 2.5 4.7 7.8 5.3 3.6 Total 6.4 12.8 16.9 21.8 13 9.2 Financial Sources (% of total project costs) IBRD (31.25% of project costs) 2.5 4.5 5.5 6.5 3.5 2.5 39.3% 35.3% 32.5% 29.8% 27.0% 27.1% ADB-OCR/ADF (37.50% ofproject costs) 3.0 5.0 6.5 7.5 5.0 3.0 47.2% 39.2% 38.5% 34.4% 38.6% 32.5% Local Governments (11% of project costs) 0.0 0.9 1.8 3.1 1.8 1.1 0.0% 6.9% 10.9% 14.11% 14.3% 12.4% National Govemment (20.25% of project costs 0.9 2.4 3.1 4.7 2.6 2.6 13.50% 18.70% 18.10% 21.80% 20.20% 28.00% Total 6.4 12.8 18.9 21.8 13.0 9.2 Page 65 Annex 6 PHILIPPINES Early Childhood Development Project Procurement and Disbursement Arrangements ]Procurement 1. Procurement Procedures: Procurement of all goods and works funded under the Bank Loan will be carried out in accordance with Bank procurement guidelines ("Guidelines for Procurement under IIBRD Loans and IDA Credits" of January 1995 revised in January and August of 1996, and in September 1997; and "Guidelines for Selection and Employment of Consultants by World Bank Borrowers" of January 1997, revised in September 1997). The procurement of goods, works and consultancy services funded in parallel by the Asian Development Bank (ADB) will be carried out under procedures satisfactory to ADB. Table A shows the Procurement Methods while Table B presents the prior review thresholds. 2. Civil Works, equipment, vehicles, materials and supplies as well as drugs and medicines will be bulked to the extent possible and procured, as follows: (a) individual contracts for the purchase of goods estimated to exceed US$200,000 equivalent, up to an aggregate of US$5.7 million equivalent, will be procured by International Competitive Bidding (ICB) using the Bank's appropriate Standard Bidding Documents. Under ICB, domestic manufacturers would be eligible for a margin of preference in bids evaluation in accordance with Appendix 2 to the Procurement Guidelines. Due to the volume and size of construction contracts, no civil works contracts are expected to be procured under ICB; (b) individual civil works contract estimated to exceed US$50,000 equivalent, but limited to contracts not exceeding US$150,000, up to an aggregate amount not exceeding US$ 1.1 million and individual contracts for the purchase of goods with an estimated value between US$200,000 and US$50,000 equivalent, up to an aggregate amount not exceeding US$3.0 million will be procured under National Competitive Bidding using procedures acceptable to the Bank. A procurement side letter will be issued by the Government detailing the procedures under local rules which are not acceptable to the Bank; (c) individual civil works and goods contracts estimated to cost less than US$50,000 equivalent, up to an aggregate of US$300,000, for works and US$2.6 million for goods, will be procured through simplified procurement procedures similar to national shopping; these apply government procedures by comparing at least three price quotations from qualified contractors and suppliers. If the local government unit has construction capability, force account may be resorted to for contracts below US$50,000, up to an aggregate amount not exceeding US$200,000 equivalent. 3. Procurement Management: An assessment of the existing capacity of the three implementing agencies revealed that: Page 66 Annex6 Page 2 of 8 (i) DSWD has never implemented a project of the magnitude of ECD. For 1996, the agency had procured a total amount of about $600,000 almcist two-thirds of which are small value contracts less than Peso 100,000 which were done through canvass or shopping. The rest of the procurement was done through public bidding or direct purchase. There are twenty four staff actually doing procurement work, all applying government rules and regulations. DSWD has thus no capacity to implement procurernent procedures under the project and would need intensive hands-on training in doing procurement using Bank Guidelines. To accomplish procurement at the early stage (first 2 years) of project implementation, a procurement agent will be hired to implement procurement. A counterpart procurement team will be established under the PMO Managernent Support Unit which will be the understudy of the procurement consultant. The procurement agent will directly assist the PMO in ICB procurement and will oversee and provide support to the regional and provincial ECD teams which will handle field procurement; (ii) DOH has begun the process of addressing existing bottlenecks in procurement for ongoing Bank projects. At this stage, still the problem of lengthy procurement processing and approval procedures within the Department exists. Until this problem is addressed, the procurement agent hired by DSWD PMO will assist the DOH in implementing its component of the project until such time that the Bank determined that DOH has the capacity to efficiently procure. The agent will work with the procurement team which will be set up with DOH as understudy; (iii) DECS's central procurement system is experienced in implementing procurement for large projects of several lending institutions. It has the capacity to implement the procurement arrangement for their component following Bank rules. A procurement team will be set up in DECS, under management by a separate PMO. This team will implement the component supporting the strengthening of ECE in Grade 1 plus integrated ECD services for the 6 years old will likewise establish its own project team to handle procurement activities. Each regional PMO shall establish its own procurement team to handle field procurement. As mandated by law, a Prequalification, Bids and Awards Committee (PBAC) in each government unit shall be established, with at least the third highest ranking member of the office, LGU, or agency acting as Chairman. Technical support for field procurement shall be provided by the central PMO. The procurement leadtime as specified in Administrative Order No. 129 shall be observed. 4. Consultancy Contracts: Contracts amounting to US$ 6.6 Million will be funded by the Bank. These contracts shall cover special studies and surveys, social marketing, training, workshops, monitoring and evaluation. They shall be awarded in accordance with Guidelines for the selection and employment of consultants by World Bank Borrowers published in January, 1997. The Borrower shall use the standard contracts for complex, time-based assignments or lump sum amounts. The quality cost based selection shall also be used for selection of firmns as provided in Section II of the guidelines while individual consultants shall be selected using the procedures set forlh in Section V of the guidelines. All consulting assignments above US$200,000 must be advertised for expression of interest. 5. Bank Review: Contracts for goods estimated at US $1 Million or more, and consultancy services contracts in excess of US$100,000 for firms and US$50,000 for individuals will be subject to prior review. With respect to all consultant services contracts, irrespective of value, prior review will be required for (a) terms of reference; (b) single source contracts; (c) contract amendments raising the value to above US$100,000 or US$50,000 for individuals. No civil works contracts are expected to reach the Page 67 Annex 6 Page 3 of 8 prior review threshold of US$5 Million. However, for each year of project implementation, the first two NCB contracts for works and the first two contracts for goods will be subjected to prior review by the Bank. All contracts which are not pre-reviewed will be post-reviewed by the Bank. These post reviews will cover an estimated 25 percent of total contracts. The percentage of total contract values that will be covered by the Bank's prior review will be 80 percent. The project implementor will use the appropriate standard bidding documents for goods for procurement using ICB procedures. For procurement following NCB procedures, the first bidding documents for goods and works will be reviewed by the Bank. Disbursements 1. The allocation of loan proceeds for disbursement purposes is presented in Table C. All disbursements will be channeled through the Municipal Development Fund (MDF). 2. Use of Statements of Expenditures (SOEs): Disbursements will be made on the basis of SOEs for actual expenditures against (a) contracts of less than US$5 million equivalent for civil works, (b) contracts of less than US $1 million equivalent for goods, and (c) consultancy contracts of less than US$ 100,000 equivalent for firms and US $ 50,000 for individuals. Supporting documentation for these expenditures would be retained by DSWD, DOH, DECS and regional PMOs, made available to the Bank's supervision mission and regularly audited by the auditors acceptable to the Bank. For purposes of payment, each agency will submit the SOEs to the Municipal Development Fund (MDF). 3. Special Accounts (SA): To facilitate loan disbursements, the MDF will open and maintain a separate special deposit account, in a commercial bank specifically authorized for this purpose by the Bangko Sentral ng Pilipinas, on terms and conditions satisfactory to the Bank, including appropriate protection against set-off, seizure and attachment. The SA, which would cover the Bank's share of eligible expenditures in all disbursement categories, would have an authorized allocation amounting to US$1.5 million, based on 4 months estimated expenditures to be withdrawn from the Loan Account and deposited in the SA. Applications to replenish the Special Account, supported by appropriate documentation, would be submitted regularly (preferably monthly, but not less than quarterly) or when the amounts withdrawn equal 50 percent of the initial deposit. The SA shall be audited annually by the auditors acceptable to the Bank. 4. Advances from MDF to DSWD and its regional offices, DOH, DECS and LGUs: To facilitate project implementation in a devolved environment, the three implementing central agencies, the DSWD Region VI office and about 25-30 LGUs may request for a 90-day cash advance facility from MDF. Prior to granting this facility, MDF, together with the Bank's Financial Management Specialist, will assess the financial management capacity of the unit. If the assessment result confirms that there is financial management capacity, the unit would be provided with the 90-day cash advance facility. Each unit will open two separate accounts, a World Bank project account (WBPA) in the authorized Government depository bank (AGDB) local branch and the other an account for GOP counterpart funding, called the Government Project Account (GPA). The concerned unit will submit its 90-day cash requirements to the central PMO in DSWD, together with its work and financial plan. The PMO will review the request amd will recommend to MDF to release the 90-day cash requirement. Upon receipt of such recommendation from the PMO and the result of the financial management assessment, MDF will transfer the 90-day cash advance to the unit's WBPA. Monthly replenishment of such cash advances shall be required from each unit. The PMO will monitor and control transfer of cash advances to its regional offices, in the submission of satisfactory proof of incurred eligible expenditures for purposes of monthly replenishment. Page 68 Annex 6 Page 4 of 8 Accounting, Financial Reporting And Auditing Arrangements 1. Project expenditures will be separately recorded and reported by each implementing agency under the new system developed by the Commission on Audit and its consultant, Earnst and Young, Philippines, which was funded by the Bank's IDF. The system, called Financial Information System for Foreign Assisted Project (FISFAP), is currently being piloted in five on-going projects. By next year, the objective is to use it in all new projects. Its features are: (a) application of commercial method of accounting; (b) use of perpetual inventory method; (c) an improved chart of account and coding system; (d) clear recording and reporting of accounting data from the local government units to the lead implementing agencies; and (e) generation of accurate and timely financial reports that are needed by agency management, oversight agencies and funding institutions. The system will run in a financial accounting software which has the capability of customization or programming modification to suit the needs of the project. 2. Project disbursements to lAs are routed through the Municipal Development Fund (MDF) as sub- loans and/or grants. The accounting policies and procedures of the MDF are governed by DBM and COA circular No. 2-97 of March 21, 1997. The circular describes the accounting policies and procedures, the Chart of Accounts and accounting entries. MDF produces separate financial reports for each project accounting for sub-loan and/or grant disbursements. The accounting staff of MDF is headed by a Chief Accountant and include some 20 staff who accounting graduates. The accounting, disbursement and record keeping functions are segregated and independent of each other. MDF relies on statements of expenditure submitted by lAs to release funds. MDF does not have sufficient staff to review the financial management arrangements of the lAs but relies on COA verification and approval of SOEs. 3. In order to ensure sound financial management of sub-project lAs, it was agreed that Financial Management Units will be established at the Central Project Management Office (CPMO) and at Regional offices. The FMUs shall be staffed with qualified and experienced financial analysts and financial management specialists who shall be responsible for financial appraisal of sub-projects and project implementing agencies. FMU staff will prepare action plans to implement the FISFAP system and assist lAs in implementation. The staff will also review periodically the financial management arrangements of sub-projects and the effectiveness of internal control procedures. FMU staff of CPMO will take overall responsibility for quality control of the work of Regional FMUs. 4. All lAs are required to prepare standard financial management reports quarterly and submit to CPMO FMU. These reports will be in a format acceptable to the Bank and will be used for monitoring of project progress by the CPMO and MDF. CPMO FMU will be responsible for consolidation of the IA financial management reports and the consolidated reports will be submitted to the Bank quarterly. In addition, CPMO will be responsible for preparing annual consolidated project financial statements based on the financial statements prepared by lAs. FMU will require that the IA financial statements are audited by COA and render and opinion thereon. 5. MDF and CPMO will be responsible for submission of the consolidated project financial statements for the audit by COA. COA will perform an audit of the project financial statements and render an opinion. A separate audit of the operations of special Accotnt and the withdrawal of expenditures through statement of expenditure will also be carried out by COA who will provide a separate opinion thereon. Page 69 Annex 6 Page 5 of 8 Table A: Project Costs by Procurement Arrangements (in US$ million equivalent) Total Cost Expenditure Category Procurement Method (including contingencies) ICB NCB Other N.B.F 1. Works 1.1 0.3 1.6 3.0 (1.1) (0.3) (1.4) 2. Goods 4.2 2.2 2.0 11.9 20.3 (4.2) (2.1) (1.9) (8.2) 3. Services 8.3 26.1 34.4 (8.3) (8.3) 4. Miscellaneous (IEC) 0.6 0.5 1.1 (0.6) (0.5) (I. 1) Total 4.2 3.9 11.1 39.6 58.8 Total______________________ (4.2) (3.8) (I 1.0) (19.0) Note: N.B.F. = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan/IDA credit Figures include contingencies. Other procurement methods include shopping and force accounts. Page 70 Annex 6 Page 6 of 8 Table Al: Consultant Selection Arrangements (in US$million equivalent) Selection Method Total Cost Consultant Services (including Expenditure Category contingencies) QCBS QBS SFB LCS CQ Other N.B.F. A. Firms (7.4) (7.4) B. Individuals (.9) (.9) Total (7.4) (.9) (8.3) Note: QCBS = Quality- and Cost-Based Selection QBS = Quality-based Selection SFB Selection under a Fixed Budget LCS = Least-Cost Selection CQ = Selection Based on Consultants' Qualifications Other = Selection of individual consultants (per Section V of Consultants Guidelines), Commercial Practices, etc. N.B.F. = Not Bank-financed. Figures in parenthesis are the amounts to be financed by the Bank loan. Page 71 Annex 6 Page 7 of 8 Table B: Thresholds for Procurement Methods and Prior Review Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review 1. Works 1.4 NCB/Shopping/Force First two contract each Account year 2. Goods 8.2 ICB/NCB/Shopping Above US$1million and first two contracts each year 3. Services 8.3 QCB/Individual selection Above USS100,000 firms and US$50,000 for individuals 4. Miscellaneous (IEC) 1.1 Total 19.0 Page 72 Annex 6 Page 8 of 8 Table C: Allocation of Loan Proceeds Expenditure Category Amount in US'$million Financing Percentage Civil Works 1.4 80% Goods 8.2 100% of foreign expenditures, 100% of ex-factory cost and 80% of other items procured locally Consultancy Services 8.3 100% IEC 1.1 100% Total 19.0 Page 73 Annex 7 PHILIPPINES Early Childhood Development Project Project Processing Budget and Schedule A. Project Budget (US$000) Planned Actual (At final PCD stage) 473 633 B. Project Schedule Planned Actual (At final PCD stage) lime taken to prepare the project (months) 30 46 First Bank mission (identification) 3/_/1994 3/_/1994 Appraisal mission departure 9/_/1996 1/_/1998 Negotiations 12/ /1996 2/ /1998 Planned Date of Effectiveness 6/ /1997 5/_/1998 Prepared by: DOH, DSWD, DECS Preparation assistance: 2 PHRD Grants; PPTA Grant from ADB, financing of studies and staff time from UNICEF, Manila. Bank staff who worked on the project included: Althea Hill, Richard Heaver, Claude Salem, Stanley Scheyer, Nicholas Prescott, Laura Shrestha, Cecilia Vales, Jayshree Balachander, Hoi-Chan Nguyen, Gbangi Kimboko, Juliana Williams, Wijaya Wickrema, Walter Schwermer. Consultants who worked on the project included (in alphabetical order): Hernando Abaya, Bing Alano, Maricon Alfiller, Ruperto Alonso, Bansi Lal Amla, Carmen Arevalo, Feny de los Angeles Bautista, Henry Briones, John Cameron, Rosendo Capul, Maria Asuncion Chin, Rodrigo Cisneros, Sonny Boy Espique, Bruce Geisert, Marilyn Gorra, Rowena Guanzon, Richard Heaver, Pradeep Kakkar, John Kevany, Alicia Lustre, Joyce Lyons, Chat Manasan, Kerida Scott-McDonald, Keith McInnes, Robert Myers, Rosario Pascua, Antonio Pio, Emma Porio, Rachel Racelis, Alexis Reyes, Mary St. John, Brad Schwartz, Ramon Tuazon, Niko van Oudenhoeven, Edith Villanueva, Raymond Villanueva, Fred Wood. Page 74 Annex 8 PHILIPPINES Early Childhood Development Project Documents in the Project File* A. Project Implementation Plan B. Bank Staff Assessments 1. "Improving Early Childhood Development: An Integrated Program for the Philippines" (A collaborative report by the World Bank and Asian Development Bank): R. Heaver and J. Hunt; Directions in Development series: World Bank, 1995 2. "Early Child Development: Investing in the Future". Maiy Eming Young; Directions in Development series: World Bank, 1996. 3. "Enriching Lives: Overcoming Vitamin and Mineral Malnutrition in Developing Countries". Development in Practice series: World Bank., 1994. 4. "A Strategy to Fight Poverty: Philippines". World Bank, Country Operations Division, Country Department I, East Asia and Pacific Region; March, 1996. C. Other Studies done during preparation I . Eufracio Abaya: Developing Strategies for Ensuring Access of Philippines and Indigenous Peoples to Early Child Development Programs. 2. Bansi Amla: Supplementary Food for the Philippines PEM Control Program: Recommended Formulation, Production and Distribution 3. Ruporto Alonso and Bansi Amla: Production and Distribution of Complementary Food for the ECD Program: A Study of Options, Managerial Feasibility and Cost ffectiveness. 4. Carmen Arevalo-Correa: Early Child Development Project: Funding Mechanisms for LGU Subproject Proposals. 5. Henry Briones: Proposed Nutrition Component for the ECD Project 6. Ma. Asuncion Chin: Community and Local Government Consultations on the ECD Program 7 Bruce Geisert: The Management Information System Comnponent of the ECD Project 8. Ellyn Gorra: The Philippines Early Child Development Program Annex 8 Page 75 Page 2 of 2 9. Rosario Manasan and Bienvenido Alano: Analysis of the Fiscal Impact and Affordability of the Proposed ECD Project. 10. Kerida Scott-McDonald: Targeting and Monitoring Strategies for the Philippines ECD Program 11. Emma Porio: Developing a Methodology for Community Consultations. 12. Alexis Reyes: Conceptual Framework for Psychosocial Development and Developmental Screening for 0-6 Years Old 13. Alexis Reyes: Design of a Referral System for Children with Disabilities and System for Targeting High Risk Children and Families. 14. Mary St. John and Sonny Boy Espique: Designing an ECD Decision Support Tool. 15. J. Brad Schwartz: Republic of the Philippines: Early Child Development Project; Economic Analysis". September 30, 1997. 16. Raymond Villanueva: Improving the Functionality, Interactivity and User-Friendliness of the Prototype ECD Planning Software. *Including electronic files. Page 76 Annex 9 STATUS OF BANK GROULP OPERATIONS IN ]?HILIPPINES (As of December 31, 1997) (in Millions of US Dollars) Amount in US$ million (less cancellations) Loan/Credit FY Borrower Purpose Bank IDA Undisbursed Closing Date Credits 7 Credit(s) closed 171.18 23920 1992 GOP SECOND VOCATIONAL TR 36 12.18 12/31/98 25060 1993 GOP URBHEALTH&NUTRITI 70 55.88 12131/00 Total Number of Credits = 2 106 68.06 Loans 169 Loans(s) closed 6,714.64 111.37 32040 1990 ROP COCONUT FARMS DEVT. 120.95 41.11 6/30/98 32610 1991 ROP COMMUNAL IRRIG. II 46.2 20.27 12/31/98 33600 1991 ROP ENV. &NAT. RES. MGT 158 20.77 12/31/98 34300 1992 ROP HIGHWAY MANAGEMENT 150 73.32 6/30/99 34550 1992 ROP MUNICIPALDEVIII 68 39.34 6130/99 34390 1992 ROP RURAL ELECTRIFICATION 91.3 40.11 4/30/98 34350 1992 ROP ENGINEERING & SCIENCE 61 9.08 6/30/98 36070 1993 ROP RRIG OPER SUPP I 51.3 26.61 6/30/99 36030 1993 ROP TAX COMPUTERIZATION 63 30.59 6/30/99 37000 1994 NPC & PNOC LEYTE CEBU GEOTHERMAL 147 23.49 6/30/98 37460 1994 ROP LEYTE LUZON GEOTHERMAL 113 28.59 6/30/99 37020 1994 NPC & PNOC LEYTE CEBU GEOTHERMAL 64 15.21 6/30/98 37470 1994 ROP LEYTE LUZON GEOTHERMAL 114 67.03 6/30/99 37450 1994 ROP SUBIC BAYFREEPORT 40 4.75 6/30/99 38520 1995 ROP WOMENS BEALTH & SAFE 18 17.49 12/31/01 39400 1996 LandBank RURAL FINANCEI[ 50 15.83 6/30/02 39960 1996 ROP TRANS GRID REINFORCE 100 72.48 12/31/00 40190 1996 ROP MNLA2ND SEWERAGE 57 57 12131/01 39970 1996 ROP TRANS GRID REINFORCE 150 112.51 12/31/00 39390 1996 LandBank RURALFINANCEII 50 22.06 12/15/98 39380 1996 LandBank RURAL FINANCE II 50 25.93 6/30/02 41080 1997 ROP THIRD ELEMEDUCATION 113.4 113.4 6/30104 41090 1997 ROP AGRARIANREFORMCOMM 50 48 12131/03 41110 1997 ROP SECOND SUBIC BAY 60 60 12131100 41100 1997 ROP WATER RESOURCES DEV. 58 56.9 12131/02 42270 1998 ROP WATER DISTRICT DEV. 2.3 2.3 6/30/03 42280 1998 ROP WATER DISTRICT DEV. 54.5 54.5 6/30/03 Total Number of Loans 27 2,100.95 1,098.67 Total*** .8,815.58 277.18 of which repaid 3,411.18 14.3 Total held by Bank & IDA 5,404.40 262.87 Amount sold 31.35 of which repaid 31.35 Total Undisbursed 1,278.10 Page 77 Annex 9 Page 2 of 2 Philippines STATEMENT OF IFC's Committed and Disbursed Portfolio As of 3 1-Dec-97 (In US Dollar Millions) Committed Disbursed IFC IIFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1967/88 MERALCO 10.75 0.00 0.00 0.00 10.75 0.00 0.00 0.00 1970/86/88/89 PLDT 23.16 0.00 0.00 14.89 23.16 0.00 0.00 14.89 1974/79 Maria Cristina 0.00 .44 0.00 0.00 0.00 .44 0.00 0.00 1979/90 General Milling 0.00 1.73 0.00 0.00 0.00 1.73 0.00 0.00 1980/82/89/90/94/95 AACT 25.00 2.73 0.00 0.00 21.50 2.73 0.00 0.00 1989 H&QPV-I 0.00 1.00 0.00 0.00 0.00 1.00 0.00 0.00 1989 Navotas 0.00 .95 0.00 0.00 0.00 .95 0.00 0.00 1990 Avantex Mill 5.63 1.98 0.00 0.00 5.63 1.98 0.00 0.00 1991 Best Chemnicals 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1992 Bacnotan 5.60 5.63 0.00 4.00 5.60 5.63 0.00 4.00 1992 Pilipinas Shell 0.00 0.00 11.63 0.00 0.00 0.00 11.63 0.00 1993 H&QPV-H 0.00 2.50 0.00 0.00 0.00 2.40 0.00 0.00 1993 Pagbilao 57.00 10.00 0.00 10.20 57.00 10.00 0.00 10.20 1993/94 Mindanao Power 0.00 4.50 0.00 0.00 0.00 4.26 0.00 0.00 1994 Walden Mgmt 0.00 .05 0.00 0.00 0.00 .05 0.00 0.00 1994 Walden Ventures 0.00 3.75 0.00 0.00 0.00 1.88 0.00 0.00 1995 Sual Power 30.00 0.00 0.00 196.00 5.90 0.00 0.00 71.20 1996 All Asia Growth 0.00 4.00 0.00 0.00 0.00 4.00 0.00 0.00 1996 All Asia Manager 0.00 .04 0.00 0.00 0.00 .04 0.00 0.00 1996 All Asia Venture 0.00 .01 0.00 0.00 0.00 .01 0.00 0.00 1997 Far East Bank 25.00 0.00 0.00 50.00 17.99 0.00 0.00 35.98 Total Portfolio: 182.14 39.31 11.63 275.09 147.53 37.10 11.63 136.27 Approvals Pending Comnmitment Loan Eguity Quasi Partic 1997 BATAAN P/E 30.00 0.00 10.00 163.00 1997 MAGSAYSAYLINES 8.00 3.00 0.00 26.50 1967 MANILA ELECTRIC 0.00 0.00 0.00 .36 1997 PT&T 30.00 5.00 0.00 30.00 1995 SUAL THERMAL 0.00 17.50 0.00 0.00 PWR Total Pending Commitment: 68.00 25.50 10.00 219.86 Page 78 Annex 10 ANNEX-10 Page 1 of,2 Philippines at a glance 2123198 Lower- POVERTY and SOCIAL East middle- Philippines Asia income Development diamond- Population mid-1996 (millions) 70.0 1,726 1,125 GNP per capita 1996 (US$) 1,190 890 1,750 Life expectancy GNP 1996 (billions US$) 83.3 1,542 1,967 Average annual growth, 1990-96 Population (%/6) 2.2 13 1.4 GNF Gross Labor force (%/6) 2.7 1.3 1.8 per pnrmar, Most recent estimate (latest year available since 1989) capita / enrollment Poverty: headcount index (% of populalion) 54 Urban population (54 of total population) 54 31 56 Life expectancy at birth (years) 66 68 67 Infant mortality (per 1,000 live births) 39 40 41 Access to safe water Child malnutribon (%56 of children under 5) 30 Access to safe water (% of population) 84 77 Illiteracy (% of population age 15+) 5 17 | Gross primary enrollment (% ofschool-age population) 111 117 104 -.Philippines Male 120 1o5 Lower-middle-income group Female 116 101 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1985 1995 1996 8r jEconomic ratios GDP (bilrions US$) 15.0 30.7 74.2 83.8 Gross domestic investmentlGDP 30.9 15.3 22.2 24.7 Exports of goods and services/GDP 21.0 24.0 36.4 43.6 1 Openness of economy Gross domestic savings/GDP 24.8 17.4 . Gross national savings/GDP 26.6 15.9 17.8 20.0 | Current account balance/GDP -6.2 -0.1 -4.4 -4.7 Interest payments/GDP 0.8 3.1 2.6 Savings Investment Totai debt/GDP 27.8 88.6 53.2 49.2 Total debtservicelexpots 14.4 31.6 16.5 14.7 Present value of debtVGDP Present value of debttexports - Indebtedness 1975-5 1986-96 1995 1996 1997-05 (average annual growth) --Philippines GDP 3.0 3.2 4.8 5.5 5. GNP per capita 0.3 1.5 2.5 44 3.5 -Lower-middle-income grup Exports of goods and services 7.6 8.7 12.0 23.9 10.5 STRUCTURE of the ECONOMY 1975 1985 1995 1996 (% of GDP) Growtv8 rates of output and investment 1%) Agriculture 30.3 24.6 21.6 21.4 20 - Industry 34.6 35.1 32.1 31.7 1 \uN Manufacturing 25.7 25.2 23.0 22.6 I Services 35.0 40.4 46.3 46.9 -o i2 93 94 95 96 .15- Private consumpton 64.5 75.0 74.2 73.9 s -20 General govemment consumption 10.7 7.6 11.4 11.7 1 GDI - DP Importsof goods and services 27.1 21.9 44.2 53.9 1975-85 1986-96 1995 1996 1 (average annual growth) 1 Growth rates of exports and imports I%) Agriculture 2.2 1.7 0.8 3.0 25 T Industry 2.6 3.3 7.0 6.3 20 Manufacturing 1.8 3.2 6.8 5.6 1i Services 3.8 3.8 5.0 6.5 ' Private consumption 3.3 4.1 8.5 5.3 5 General govemment consumption 0.4 4.6 5.4 5.2 ° Gross domestic investment -0.4 6.9 3.0 15.6 . 92 93 94 95 96 Importsofgoodsandservices 3.9 12.3 16.0 21.1 Expons Impo,t Gross national product 2.7 3.8 5.0 6.9 - Note: 1996 data are preliminary estmates. The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond will be incomplete. Page 79 Annex 10 Page 2 of 2 Philippines PRICES and GOVERNMENT FINANCE 1975 1986 199 1996 Inflation Domestc prices (% change) 20 - Consumer prices 6.8 23.1 8.1 8.4 15 Implicit GDP deflator 9.3 17.6 7.5 8.9 10 Government finance (% of GDP) 0 Current revenue .. 12.1 18.5 19.5 91 52 93 94 9f 96 Current budiget balance 2.4 2.5 3.1 - GDP def. ---OCPI Overall surplus/deficit .. .. -1.4 -0.4 TRADE 1975 1985 1996 1996 Exportandimportlevels(mill.US$) (millions US$) Total expoits (fob) .. 4,629 17,447 20,543 3,9000 _ Coconut oil .. 347 826 571 30,000 Sugar 185 74 139 25,0r0 Manufactures .. 2,539 13,868 17,106 20000 Total impoits (cif) 5,111 26,391 31,885 15,000l Fooedaneeg 256 1,204 1,578 10000 o . - Capital goods .. 769 8,029 10,472 0 Food .. 256 1,204 1,578 10.000~~~~~~~~~~~~~~~~~~~~~s 91 9 9m4 5 9 Export price index (1987=100) .. 81 124 124 s 9 92 92 94 95 95 Import price index (1987=100) .. 63 124 126 zExports [iImports Terms of trade (1987=100) .. 127 100 99 BALANCE of PAYMENTS 1976 1985 1995 1996 C (millions US$) Current account balance to GDP ratio (%) Exports of goods and services 3,000 6,864 21,978 28,566 0 _- - Imports of goods and services 4,116 5,961 33,314 42,254 90 91 92 93 94 95 9 I Resource balance -1,116 903 -11,336 -13,688 -| Net incomie -126 -1,317 7,157 9,185 - - Net current transfers 318 379 882 589 3 Current account balance, 4 - before official capital transfers -923 -35 -3,297 -3,914 Financing items (net) 912 867 3,928 8,021 ; Changes in net reserves 11 -832 -631 -4,107 -- Memo: I Reserves including gold (mill. US$) 1,458 1,098 7,762 11,745 Conversion rate (local/US$) 7,2 18.6 25.7 26.2 EXTERNAL DEBT and RESOURCE FLOWS 1975 1985 1995 1996 (millions USS) Composition of total debt, 1996 (mill. USS) Total debt outstanding and disbursed 4,171 26,839 39,445 41,214 IBRD 238 2,421 5,002 4,666 G 4666 A IDA 17 84 183 193 7969 193 c Total debt service 457 2,534 5,337 5,778 405 IBRD 26 285 790 766 D IDA 0 1 3 3 , 3079 Composition of net resource flows Official grants 72 139 276 .. / Official creditors 185 381 -648 .. E Private creditors 348 776 1,166 .. F 12085 Foreign direct investment 98 12 1,478 1,600 12817 Portfolio equity 0 0 1,961 1,333 World Bank program Commi:ments 114 104 168 528 A-IBRD E-Bilateral Disbursements 94 276 402 457 B - IDA 0 - Other mulUlateral F - Private Principal repayments 12 110 415 426 C-IMF G-Short-term Net llov,s 82 166 -13 31 Interest payments 14 176 378 343 Net transfers 68 -10 -391 -312 Development Economics 2123/98 MAP SECTION 1,18 120o 122' I - NORH A 'CIFIC CHINAOC N PHILIPPINES :Batan OCEN EARLY CHILDHOOD Bonn. 40'52 DEVELOPMENT PROJECT A AH4VITNA ,wnE Regions and Provinces 2------ Covered Under the Project MALAYSIA 7 PROJECT PROVINCES Ba.byan - PAN-PHILIPPINE HIGHWAY I51ands OTHER MAIN ROADS I N D 0 N E S i A' FERRIESNC ttAoc0 - INTEPNATIONALAIRPORTS K 1 lI 120 AUSTRALIA MAJOR PORTS Looog Ciy 09 - 18' RIVERS . .' Kskgo 124 126- IS' * PROVINCE CAPITALS ;ProcI This nap wgs pcoduccd by lhe Mop Dosign lnit at Tb Wadd BasIs. S REGION CAPITALS . B-g-2sd Tsgoagorno The b-dlo,da-es,-colors,dooR snot aoyothl gnO soaaP.an PROVINCE BOUNDARIES N Songo lodgnanto ha lstoOkaP anyllOry.ranyands,saoanlor REGION BOUNDARIES L o oA aecpsncohos5UC riS. bor<; ;pBl~~~logo, Regions and Provinces: , , XLo9oWc < (Ragians and Provinces caserrd uoda, the Pra/act Smn Faon-sldoA , o *I otspaar in cad) bcC -- Lanio f;1 *omlg u~~~~~~~~~~~ 'Elnssp03oaSt igrboT 10 00 t lnoogoy ;. Lu X on -160 Tol -' lCoss Rob AnmeK, | PPoylilbl Roc Frno Cobeodloonnd Abn gnpso olooLll Mo:n *sobngn o;ueoso Ci " 'MATkNILAb; p3I'IS R, ' .shlaoo'a* Ioae Pongonibon . I : . ' -14- 0 0 '0£'Nsbot Sbd 0i Sea b7 Ns11-Ksd- Cp IT V Xll CcntrCi MiOd.- 0Soblg Cnondcqna 69. L0 mmddNm *Monoo,oo , ,O o LboiToboCjy 69. NaIb Couoholo 0g . 3 o1 0 S t S ~~~~~~Mindara 9ro tes 9.:~~~~~~~~~. Cdwn '-:eobno MB99 PMa ERn ' / - 4oros r P o Isid2, Rotlo ?jjsosso \ S °byg PlO ? AAhLipchl_osoy. Rcoo - J \,C.qc2 C ° Puerb Prina so Cily aeSstesa MtoA Iidro -12- 2Tf Aowolod- Cab.. Ci Cotoq,slnd Iloqss,b 2o VI Waster- Visapas -opo-oh 1 A 1R a Ploa o NIb Al. Copi d p 52. sisaCco5, R. 19 Poo 55 toll lslDluonds > b ob, 40. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ d tossoiloondolo dts tnr id l t - ~~~~~~~~~~~~~~~~~~~~~~~~~S. - 6 de. I b.- VII Centra1 Wt-myn 45 taMdao S. o1ajlo. . Rco O100l200 Rinogal fAET2t5 w IS . . I Ip~ Iiaga O P-osolPri.-cesCtly Cpgo-otd 0 o. S.'~~~~~~~~~~~~~~~~~~~~~~~~~~~~C dte. 6i MALAYSIA PssPn 9 lO 209 300 KIILOAMRIRS Fl 005~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ a 119' 120 122' t2, 12SA' 118 126 122 '100 10 <291' . NORH PACIFIC PH'L'IPPINES CHINA r' 66 OCEAN EARLY CHILDHOOD 77'7\.Plppe DEVELOPMENT PROJECTRW*NE Distribution of Indigenous Sr, Peoples Groups VS'( * INDGERNOUS PEOPLES 7~ KGOOT TRIBES: B .Rohy-n77- 1, YAPAYAOLIlns- 2.ISNEO 82oocho2-I - JND NEIA .2 3 IiNGIAN INDIAN ,- o'h& 4 KAUNGA .7> ,OCEAN L7,2 3 BONTOC 70 1120 . 1RA& 6. IEUGAO I 7' KANKANARY Q 12A. 12621 B IRALOY * D PAWAWAN: ~ CARASALLOI o'~~A COYONN CR® REGION CAPITALS CAGAYAN VALLEY: 7-S TC-A7SUAIIJ 9 ITAWES .2 IIA1.NS- REGION BOUNDARIES 10 ISINAI -SAA 11 IBANAG AA Fl- .5Y tegos 12 GADDANG gions/ 13 ILONOOT C07,77F.,,0 0 I 1%-p 14. IKALAJHAN 3t ORg 0 0CR . 16-~~~~~~~~~~7 NEGRTO RCoo6'- 6' NFl/BOO - . di Cook.)~~~~S-F-d I P.di AMINGANAC LUMAD M N~ -14' 24. UBO -,714'- 25 BURIDNONISo- K > i 34. TAGAKAOLO .POE 33~ BANWIAGIN 2Jn.g ".7 12' 36. DIBABAWON .......7 S..., 12' O - 7- C776ee'~So - sroayan ~ S- P.-y ~ ~ ~ ~ Sas Lioopeo4 No/K 1 1,!Z,C >Y.. - ii GP.yI' a 9 'K) ~~~~~~/c ~~~~~~~~~~~~~~~~~0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ lou CI Sului 0 LtSea K _ 8~~~~~~~~~~~~~~~ ., o. ?~~"'~~.&, -~~__ _________~ _ K tfln~~~~~~~~" /~~~~~ nc - Negros " Rehol . /~~~~~1 s o 90~~~~~~~~~~~~~~~~~~~~~~~..~ ft 2 . Mndaeao~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~D Suls Sea~Celbe Sea070 - '2 -~~~~~~~~~2- 2 Sea2 12B.o 07-7 iet w K. -L i