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Annual Report 2001

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Philippines

Economic performance

The GDP growth rate in the Philippines decelerated from 4.0% in 2000 to 3.4% in 2001, owing mainly to the global economic slowdown, political disruptions, and consequent weak investor confidence. All three major economic sectors expanded during the year. The agriculture, industry, and services sectors grew by 3.9%, 1.9%, and 4.3%, respectively. Slow economic activity resulted in average inflation for the year of 6.1%, well within the government target of 6.0%–7.0%. This was due mainly to favorable supply-side factors, notably lower prices for food and oil products, and continued prudent monetary policy. The fiscal deficit of 147 billion pesos in 2001 was maintained close to the government target of 145 billion pesos, because of lower public expenditure. The overall balance of payments yielded a deficit of $1.5 billion in 2001. Nevertheless, the current account remained in surplus at $4.5 billion following the surplus in the trade-in goods and income accounts. Compared with the level in 2000, the current account surplus in 2001 was lower by 47% due to the 16.2% slowdown in merchandise exports. Despite the global economic downturn and more cautious investing, direct investments were $2.0 billion in 2001. Portfolio investments likewise posted a net inflow of $297 million due largely to the divestment by residents of their holdings of foreign-issued debt securities in September. Unemployment was recorded at 11.1% in 2001, compared with 11.2% in 2000, resulting from high population growth and low employment opportunities.

ADB operations

Operational strategy: ADB’s operational strategy supports the Government’s development priorities elaborated in the Medium-Term Philippine Development Plan and aligns with the country operational strategy—revised as country strategy and program update in October 2001—which aims to reduce poverty, promote equity, improve social services delivery, protect the environment, and promote good governance. The strategy balances these priorities and emphasizes socio-environmental development and poverty reduction. Priority projects are basic education and health services; urban services development, especially housing; rural roads; rural development; natural resource and environmental management; and enhancement of nonbank financial governance. The Government and ADB signed the Poverty Partnership Agreement in October 2001.

Policy dialogue: Policy dialogue with the Government included reforming the power sector and privatizing the National Power Corporation; enhancing basic urban services in Mindanao; supporting government reforms to improve governance in the nonbank financial sector; improving air quality under the Metro Manila Air Quality Improvement Development Program; and providing assistance for government judiciary and economic sector reforms.

Loans and technical assistance: ADB approved two loans in 2001 totaling $105 million for the Mindanao Basic Urban Services Sector and Nonbank Financial Governance Program. Nine technical assistance grants were approved in 2001 totaling $7.6 million. Six were advisory assistance grants on improving poverty monitoring surveys, strengthening the independence of the judiciary, capacity building for the Regulatory Office of the Metropolitan Waterworks and Sewerage System, strengthening regulatory and market governance, rural road development policy framework, and competition policy for the electricity sector. Three were project preparatory assistance for integrated coastal resource management, microfinance for rural development, and Metro Manila urban services for the poor.

Project implementation: Since joining ADB in 1966, the Philippines has received 185 loans, of which 55 were active at the end of 2001. Contract awards totaled $304.5 million, bringing the cumulative figure to $4.9 billion. The contract award ratio for 2001 was 21.0%, higher than the ADB-wide average of 14.8%. Disbursements during the year totaled $321.8 million, bringing cumulative disbursements to $5.2 billion. The disbursement ratio was 18.7%, lower than the ADB-wide average of 20.5%.

Policy dialogue was intensified on portfolio issues through the quarterly portfolio review, jointly conducted with the Government, World Bank, and Japan Bank for International Cooperation, and ADB’s annual country portfolio review.

The country portfolio review mission in April 2001 emphasized to the Government the importance of good governance as a basic principle in sound portfolio management. Consultations that followed focused on improving disbursement performance, reducing underperforming projects, canceling surplus funds, speeding up recruitment of consultants and procurement of goods and civil works, and addressing policy reform issues. Concrete steps taken during the year included restructuring several project subcomponents, canceling $139 million of unutilized loan surplus, and increasing contract awards and disbursements.

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