FACTS AND FIGURES

Attaining the Philippine government's development objectives and sustaining economic growth entail resources.  Domestic resources required to finance domestic investments needed for economic growth and development, however, are not enough.  We therefore turn to foreign resources to supplement existing resources.  Official development assistance (ODA) provides a relatively more concessional means of financing government programs and projects.

What is ODA?

Official development assistance are resource flows provided by bilateral sources and multilateral institutions with the objective of promoting the economic development and welfare of the recipient country.  Behind this altruistic intention, however, ODA has been used as an instrument of foreign policy of more developed countries to advance their political and commercial interests.

ODA, in contrast with other foreign flows, is mainly concessional.  Concessionality refers to the degree of grant element constituting the assistance.  The ODA Act of 1996 (R.A. No.8182) as amended by RA No. 8555 defines ODA as flows with a grant element of at least 25 percent at a 10 percent discount rate.

ODA may either take the form of soft loans or grants.  Soft loans have interest rates, which may range from zero to seven percent, maturity periods ranging from ten to 50 years and grace periods of five to ten years.  ODA grants, on the other hand, have no repayment obligation and are mainly provided in the form of experts, consultancy services, equipment, commodities and training.

Does ODA have any costs?

ODA, however, are not provided without costs.  On the side of the donors, the costs include the opportunity cost of resources, which implies foregone earnings given the option of investing the resources in something else, and the administrative costs of administering and monitoring ODA.  The costs of the recipient government, on the other hand, are:  a) local counterpart; b) operation and maintenance costs of implementing programs and projects; and c) financial costs such as debt service requirements of ODA loans.  It is precisely because of these costs that the Philippine government undertakes an ODA programming exercise to ensure that ODA resources are channelled to priority development activities and are utilized effectively and efficiently.

ODA programming and coordination are the process of directing and matching the overall flow of ODA to programs and projects consistent with national development objectives.  The identification and selection of projects for ODA funding are activities related to the preparation of the Medium-Term Public Investment Program (MTPIP).  The MTPIP is the translation of the goals and policies enunciated in the Medium-Term Philippine Development Plan (MTPDP) into a set of prioritized national and regional activities, programs and projects.  It guides the allocation of investment resources across sectors and across regions.  It is important that programming be linked to development planning to ensure consistency of regional and sectoral targets with macroeconomic targets.  The institutional set-up existing within government at present already promotes integrated planning, investment-ODA programming and budgeting.

What does the government consider in matching projects with ODA sources?

In pipelining or identifying suitable projects for financing by specific ODA sources, the Philippine government takes into account its considerations and requirements, on one hand, and ODA donor and creditor considerations, on the other.

From the government’s perspective, projects are matched with funding sources taking into consideration:

-               the relative priority accorded to the program or project in terms of socio-economic impact;

-               the project’s nature and requirements;

-               the donor’s comparative advantage in technology;

-               the timing of implementation;

-               readiness for implementation;

-               relevant government policies and strategies (e.g., privatization, user pay principle, full         cost recovery); and

-               the provision of local counterpart funding within legislated appropriations cover.

                Donor considerations meanwhile are mainly:

-               thrusts or preferred areas of assistance based on competence or area of    specialization/comparative advantage;

-               terms/conditions and type of assistance; and,

-               budget cycle and timing.

The government's preferred ODA sources are therefore those which:

-               provide unconditional/untied grants;

-               constitute least debt-servicing requirements;

-               are quick-disbursing;

-               have no unnecessary conditions attached other than legal requirements; and,

-               encourage/allow domestic procurement/local employment.

In matching programs and projects with ODA financing, the NEDA Secretariat adopts the following guidelines, which were based on a policy on social sector financing approved by the NEDA Board in April 1995:

1. grants and highly concessional financing are preferred for development projects in the social sectors as well as for technical assistance types of projects;

2. loans with less concessional terms, on the other hand, are justified for projects which are revenue generating and lead to capital formation.

ODA Programming Process

The ODA programming process involves a continuum of interrelated activities - from project identification and evaluation, leading to an investment decision, its financing, implementation, monitoring and post-project evaluation.

A. The Country Program Review

It usually starts with a Country Program Review wherein the Government and the funding agency sit down to discuss the status of the current ODA program, identify common areas of concern and agree on future directions of foreign aid.

B. Project Identification

The MTPIP serves as the primary basis for the identification of project for the country program to ensure that MTPDP-supportive projects are given due priority in funding.

Proponent agencies identify projects consistent with the priorities in the Plan.  Resources may be made available to proponents for the preparation of a project proposal or feasibility studies.

C. Pipelining of Projects

Upon submission of the proposal to NEDA, the Secretariat matches the objectives of the project with those of the donors.  This activity leads to the formulation of a project pipeline for each donor, which is basically a long list of projects drawn from, or consistent with the MTPIP based on the eligibility criteria and the aid policies of the donor.

Simultaneously, the NEDA, as secretariat to the Investment Coordination Committee (ICC), evaluates the proposal based on the following criteria:  a) financial viability; b) economic viability; c) technical viability; d) environmental impact/social acceptability; e) social impact; and f) institutional considerations.

Upon favorable evaluation and subsequent approval by the ICC-Cabinet Committee, the project is elevated to the NEDA Board for final approval.  The NEDA Board approval will then constitute the official endorsement of the project by the Government to the funding agency.

E. Donor Appraisal and Approval

Upon receipt of the government's endorsement of the project pipeline or individual project, the proposal is once again subjected to the donor’s appraisal leading to a final decision.  For those favorably considered by the funding agency, the government is informed that an amount is being earmarked or pledged for the project through an Exchange of Notes or through a Note Verbale coursed through diplomatic channels.

Subsequently, for loans, the Department of Finance, together with NEDA, holds loan negotiations with the funding agency.  With regard to grants, NEDA takes the lead in representing the government in consultations with the proponent agency.

F. Implementation

The official signing of the loan or grant agreements marks the start of the project or program.  The Department of Budget and Management programs the disbursement of loan proceeds and counterpart requirements for loan-assisted projects.  NEDA, on the other hand, monitors the utilization of ODA resources as well as the physical accomplishment of the project.

The process may seem tedious but the whole point of the exercise is to ensure that ODA resources are utilized efficiently and the results of which is manifested in the quality of public investments for which ODA resources are used.

ODA Trends, 1992-1999

How much ODA has the country received so far?

Figure 1.

  ODA Commitments to the Philippines by Form, 1992-1999

  Source:  NEDA Public Investment Staff

ODA inflows to the Philippines amounted to approximately US$14.13 billion from 1992-1999, of which US$2.13 billion (15 percent) were grants and US$11.9 billion (85 percent) were loans and mixed credits.

Japan continues to be the major source of ODA, contributing approximately 45 percent (US$6.3 billion) of the total amount, followed by the Asian Development Bank and the World Bank with 19 percent (US$2.7 billion) and 18 percent (US$2.5 billion), respectively.  For ODA loans, the major sources were Japan, ADB, and the World Bank, accounting for approximately 46 percent, 23 percent and 22 percent, respectively.  For ODA grants, the major sources were Japan, the United States and the European Community contributing about 37 percent, 20 percent and 13 percent, respectively.

Figure 2.

ODA Commitments to the Philippines by Source, 1992-1999

Source:  NEDA Public Investment Staff

ODA flows during the period likewise reflected global and national priorities.  Of the total ODA loans during the period 1992-1999, approximately 59 percent of total ODA or US$8.3 billion was directed to infrastructure development especially in the transportation (44 percent or US$3.7 billion) and energy (33 percent or US$2.7 billion) subsectors. Between 1992-1999, approximately US$1.7 billion of ODA loans and grants were committed to the social reform and development sector.

Figure 3.

ODA Commitments to the Philippines by Sector, 1992-1999

Source:  NEDA Public Investment Staff  

ODA Prospects

It is expected that in the coming years, ODA flows for agri-industry will increase as global trends indicate that agri-industry and social reforms are equally crucial for sustainable development.  This is consistent with the priorities set out in the MTPDP and the poverty alleviation programs of the government.  The continued convergence of donor priorities with that of ours may be a good indication that we have so far been successful in our ODA programming ---- we were able to steer donors towards our priorities and as such, we were able to optimize the gains from ODA resources.

Continued ODA flows to the country would depend much on the perception of the donor community on the economy.  Sustaining their confidence would hinge on the country’s ability to sustain economic growth.  In the meantime, the favorable macroeconomic picture has enhanced the government’s ability to mobilize more domestic resources for public investments.  Moreover, the increasing participation of the private sector in the provision of public infrastructure through the Build-Operate-Transfer and other related schemes have freed up more resources for other priorities of the Government. 

These trends indicate that in the near future, the need for ODA will be less critical as the country relies on more sustainable sources like investments and trade.