Celia M. ReyesSenior Research FellowPhilippine Institute for Development Studies

Regional Forum: Journey to and From the Middle Income Status- The Challenges for Public Sector ManagersApril 22-25, 2015, Shanghai, PRC

Challenges in achieving inclusive growth: The Philippine Case1Avoiding middle income trapAchieving inclusive growth all benefit from and participate in the growth processChallenges for middle income countriesRelatively higher economic growth in recent yearsSlow reduction in poverty Lower inequality in urban areas but small increase in inequality in the rural areas Jobless growth

Track record of the PhilippinesRecent economic growth has been remarkable Source of basic data: NIA, NSCB2011 Slowdown The European debt crisis and the fragile recovery of trading partners, however, caused slowdowns in other sectors.

First quarter growth 7.8%

Industry sector grew by 10.9%, services sector by 7% and agri sector by 3.3%. Industry sector construction 32.5%; manufacturing by 9.7%, while mining contracted by 17%

Services financial intermediation 13.9%

4Source: NSCB

Yet slow progress in poverty reductionPoverty incidence increased further in 2009 due to the lingering effects of the food and fuel price hikes, global financial crisis and natural calamities such as typhoons Ondoy and Pepeng in the latter half of 2009 and El Nino 5GINI Coefficient, Philippines, by Areas, 1985-2009Source: Celia M. Reyes, Aubrey D. Tabuga, Ronina D. Asis and Maria Blesila G. Datu, 2012, Poverty and Agriculture in the Philippines: Trends in Income Poverty and Distribution (PIDS DP 2012-09) Unemployment Rate, 2005-2012Note: Data refers to average of January, April, July and October rates except for 2005 which is the average of April, July and October rates.Source: Yearbook of Labor and Statistics: http://www.bles.dole.gov.ph/ (downloaded 13June2013)Underemployment rate, 2005-2012Note: Data refers to average of January, April, July and October rates except for 2005 which is the average of April, July and October rates.Source: Yearbook of Labor and Statistics: http://www.bles.dole.gov.ph/ (downloaded 13June2013)Weak investmentInadequate infrastructureGovernance issuesHuman capitalConstraints to inclusive growth include Investment to GDP Ratio ( in percent)Source of basic data: National Income Accounts, NSCBInfrastructure Ranking of Selected Countries (out of 144), 2012-2013OverallRoadRailwayPortAirPhilippines988794120112Indonesia92905110489Malaysia 2927172124Thailand4939655633Viet Nam1191206811394Source: World Competitiveness Report 2012-2013.Electricity Rates for General and Business Use in Selected ASEAN Cities (2012)CityCountryElectricity Rate for General Use (US$/kWh) *Average Electricity Rate for Business Use (US$/kWh) **ManilaPhilippines0.250.15CebuPhilippines0.240.23SingaporeSingapore0.230.2176Phnom PenhCambodia0.160.216YangonMyanmar0.120.12BangkokThailand0.110.14Kuala LumpurMalaysia0.110.09DanangVietnam0.080.085Ho Chi MinhVietnam0.080.085HanoiVietnam0.080.085JakartaIndonesia0.080.08VientianeLao PDR0.070.0685BatamIndonesia0.060.11Table taken from: Navarro, A. (2013) Finding solutions to the problem of high electricity rates in the Philippines. Philippine Institute for Development Studies Discussion Paper (forthcoming)Proportion of children attending school, by income quintile and by age group, 2011Basic source of data: APIS 2011, NSO.Percentage distribution of workers by highest educational attainment and by income quintile, 2009Basic source of data: Family Income and Expenditure Survey 2009, NSO.Distribution of workers who have elementary education by sector of employment, 2011

Source of basic data: LFS (July 2011), NSOAverage daily wage of wage/salary workers by educational attainment, 2011

Source: Celia Reyes, Aubrey Tabuga, Christian Mina and Ronina Asis, 2013. Regional Integration, Inclusive Growth and Poverty: Enhancing Employment Opportunities for the Poor (PIDS DP 2013-10)Poor to Benefit from growth Redistributive policies and programsPoor to Participate in the growth process Social Protection programs such as Conditional cash transfer program or the Pantawid Pamilya Pilipino Program (4Ps)

What can be done to promote inclusive growth?Features of the 4PsObjectives:Social Assistance provide cash assistance to alleviate immediate needs (short-term poverty alleviation)

Social Development to break the intergenerational cycle of poverty through investments in human capital

Features of the 4PsTarget families: Extremely poor families with children aged 0 to 14Components: Health and EducationHealth: P6,000 annually (P500 per month)/familyEducation: P3,000/child/school year (P300/child/month for 10 months); up to a max. of 3 children in each familyFeatures of the 4PsConditionalities:Pregnant women must avail of pre- and post-natal care and be attended during childbirth by a trained health professionalParents must attend family development sessions0-5 year old children must receive regular preventive health check-ups and vaccines3-5 year old children must attend day care or preschool classes at least 85% of the time6-14 year old children must enrol in elementary or high school and must attend at least 85% of the time 6-14 years old children must receive de-worming pills twice a yearFeatures of the 4Ps: Targeting SchemeCriteria for selection of beneficiaries:Residents of poorest municipalities;Households whose economic condition is equal to or below the provincial poverty threshold;Households that have children 0-14 years old and/or have a pregnant woman at the time of assessment; andHouseholds that agree to meet conditions specified in the program.21Features of the 4Ps: Targeting SchemeThe DSWD selects the beneficiaries through the National Household Targeting System for Poverty Reduction (NHTS-PR).The benificiaries are selected from the poorest municipalities based on the 2003 Small Area Estimates of poverty incidence generated by the NSCB. Municipalities with poverty incidence higher than or equal to 50% are saturated all families are interviewed and assessed for eligibility.In municipalities where the poverty incidence is less that 50%, pockets of poverty are identifies by the municipal social welfare and development officer and then families in these pockets are interviewed and assessed for eligibility. Families residing outside these pockets of poverty are excluded in the assessment. This leads to significant exclusion.The poorest households in the selected municipalities are identified through a Proxy-Means Test.

Number of 4Ps families (in millions), Philippines, 2007-2014 Source of basic data: Reyes, et al (2013)4Ps has been scaled up too rapidly4Ps Targeting: LeakageBased on the APIS 2011, 4Ps beneficiaries comprise 6.4% of the total number of families. Over 82% of all 4Ps beneficiaries are rural families.Only 70.81% of the 4Ps beneficiaries in 2011 are income poor (after taking out the cash grant). Among the 4Ps beneficiaries who are poor, only 7.2% became non-poor when given cash transfers.NHTS-PR identified 5.2 million poor families, way above the estimated 3.9 million poor families in 2009. Including all these families will lead to even higher leakage rate.

24Leakage rateProportion of 4Ps beneficiaries who are nonpoorSourceLeakage ratesAPIS 2011(less cash grant)29.24Ps Targeting: Exclusion IssueAs of 2011, the 4Ps has reached 20.3% of the countrys total poor familiesOn-demand system (families who claim eligibility but are not selected have to go through the on-demand system); they are entered into the database of eligible beneficiaries in the NHTS-PR; there is a lag before they can be accommodated into the 4Ps database of beneficiaries

ON-DEMAND SYSTEMFamilies who can prove their eligibility to the program can seek to be included among the beneficiaries. However, based on an interview with program implementers, these families are not directly entered into the database of 4Ps beneficiaries but on the database of eligible families under the NHTS-PR. This procedure may cause delay in the inclusion of deserving families to the program, if they get included at all.

26 Budget category20112012Total 21,194 39,450 Cash transfer/grant to beneficiaries 17,138 35,453 Implementation support* 4,056 3,997 Trainings1,625 703 Salaries and allowances for 1,800 new personnel 716 1,877 Bank service fee171 346 Information, education and advocacy materials; printing of manuals and booklets649 252 Capital outlay 218 133 Monitoring, evaluation and administration support 677 686 Share of cash transfer to total budget80.9%89.9%Source: DSWD, available online http://pantawid.dswd.gov.ph/index.php/pantawid-pamilya-financialsShare of Cash Transfer to Total BudgetAdministrative cost of the program is substantialNeed to find ways to reduce administrative costs one way is the unified data collection system27 IMPACTS of 4Ps on Education

Based on Reyes et al assessment of the 4Ps Source of basic data: APIS 2011, NSOProportion of children in 4Ps families who are attending school, by ageSchool Attendance falls below 90% after age 13Proportion of children attending school, by income group and by age group, 2011Source of basic data: APIS 2011, NSOOlder children drop out of school to work to augment family income Source of basic data: Matched files of APIS 2011 and LFS July 2011, NSOProportion of children in matched 4Ps families who are attending school and/or working, by single year of age, 2011Comparison of school attendance rates of children in matched 4Ps and non-4Ps families, by age group, 2011Age group4PsNon-4PsDifferenceSignificance(=0.05)Aged 6-1496.392.83.5significantAged 6-1197.895.02.8significantAged 12-1493.189.04.1significantAged 15-1857.154.32.8not significantNote: Figures are estimates from the Nearest Neighbor (1), or One-to-one, matching with replacement.Source of basic data: Matched files of APIS 2011 and LFS July 2011, NSO Average daily wage of high school graduate is 40% higher than an elementary undergraduateSource of basic data: LFS (July 2011), NSORecommendations of the studyTo extend the 4Ps to cover high school education - children up to 18 yearsImprove targeting scheme to reduce leakages and exclusionGovernment response:Extended it to high school and increased the budget allocation for 4PsUpdating the targeting schemeRevenue and Tax Effort(GDP base year 2000)*Using the 2000 rebased/revised GDP by NSCBDistribution of total public expenditures, by Sector, 2013Source: Department of Budget and Management (DBM) The Philippines is in a higher growth trajectory. However, inclusive growth still has to be achieved.To address constraints, investments in infrastructure and human capital, among others, are necessary.Raising government revenues to finance these investments are critical.Sin tax on alcohol and tobacco (2013) to finance higher health care programs

Concluding remarks

Thank you