MCC-Philippines Partnership

The Philippine economy has exhibited considerable growth and resilience in the past year. After a sharp decline in 2011, gross domestic product grew 6.6 percent in 2012. Unlike its neighbors in the region, the Philippines’ GDP has continued to improve since, peaking at 7.7 percent in Q1 2013. Early this month, the World Bank increased 2013 and 2014 growth projections for the Southeast Asian country. In May 2013, the bank forecast 2013 and 2014 GDP to increase 6.2 percent and 6.4 percent, respectively; revised estimates peg GDP growth to 7 percent for 2013 and 6.7 percent for 2014. In contrast, the World Bank downgraded GDP forecasts for many other countries in the East Asia and Pacific region. Rising consumer confidence, greater public spending and a significant resurgence in exports underpin the Philippines’ current notable performance. But inclusive growth remains a challenge. While development indicators in the National Capital Region and Central Luzon show marked improvement, those in Mindanao, Eastern Visayas and Northern Luzon have stagnated and, in some cases, even regressed. Access to quality education, health and other basic social services remains inequitable across regions, particularly among rural and fringe communities. Nearly 28 percent of the population still lives below the poverty threshold, of which 10 percent is considered extremely poor. Chronic underemployment and large gaps in social and physical infrastructure also reflect the country’s disjointed and unequal growth. One of the top donors to the Southeast Asian country, the United States contributes significantly to the Philippine government’s poverty reduction efforts. The Millennium Challenge Corp. is among the agencies facilitating U.S. assistance to the Philippines, which received its first threshold grant in 2006. The Philippines became eligible for a compact in 2008, and the Millennium Challenge Account – Philippines was established a year later. A five-year compact was signed in September 2010, with implementation starting in 2011. Funding levels MCC has earmarked $433.9 million for its five-year compact with the Philippines, the bulk of which has been allocated to finance three core projects. Funds are coursed through MCA-Philippines, which also oversees compact-related monitoring and evaluation activities. The Compact Implementation Funding may be used to finance activities to help carry out the projects, including project management activities and technical assistance. But although the MCC has earmarked funding for CIF, disbursement will still depend on conditions such as submitting a “complete, correct, and fully executed Disbursement Request” for the period. As of June 2013, more than $293.5 million has been committed from the total compact funding and nearly $88.6 million has been disbursed. Funding priorities MCC’s five-year compact with the Philippines aims to reduce poverty through projects that can help promote inclusive growth and provide economic opportunities. There are three main projects. 1. The Kapit bisig Laban sa Kahirapan – Comprehensive Integrated Delivery of Social Services or “KALAHI-CIDSS” seeks to raise the standard of living across rural communities through community-led projects and capacity-building initiatives. 2. The Revenue Administration Reform Project works to bolster investment and public spending through more a streamlined and transparent tax administration system. 3. The Secondary National Roads Development Project seeks to significantly cut transportation costs and improve market linkages and social service delivery by rehabilitating an existing 222-kilometer road segment connecting Samar and Eastern Samar provinces. Click on the image to view a larger version Devex analysis The MCC compact was designed to spur long-term growth in the Philippines by empowering communities to be the catalysts and sustainers of growth themselves. Road infrastructure, tax administration and community development will continue to be the MCC’s focal areas until the completion of the compact in 2016. MCC is optimistic the work in these areas will continue to result in tangible benefits 20 years after the compact was started. For instance, MCC is projecting an increase of up to $483 million in household income, which could have an impact on more than 130.5 million. In the short term, MCC will be engaging in knowledge sharing with the World Bank, building on their previous cooperation to complement some components of the KALAHI-CIDSS project. MCC and the World Bank will also be working with the U.S. Agency for International Development to broaden the impact of KALAHI-CIDSS in the Luzon and Visayas regions. The Philippines has made considerable progress against its compact targets. This, coupled with strong economic growth, means the Southeast Asian country may no longer need a second compact after 2016. Contact: Millennium Challenge Account – Philippines Tel: (63-2) 984-6003, (63-2) 496-4739, (63-2) 631-1255 Fax: (63-2) 451-1131 Email: info@mca-p.ph Join the Devex community and gain access to more in-depth analysis, breaking news and business advice — and a host of other services — on international development, humanitarian aid and global health.