Philippines - Municipal Development Project

Document of The World Bank :F1 3 FOR OFFICIAL USE ONLYFO Report No. P-3817-PH REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN THE AMOUNT EQUIVALENT TO US $40.0 MILLION TO THE REPUBLIC OF THE PHILIPPINES FOR A MUNICIPAL DEVELOPMENT PROJECT May 15, 1984 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit = Peso (P) US$1 = P 14.0 Pesos 1 = US$ 0.0714 ABBREVIATIONS AND ACRONYMS COA - Commission on Audit CPO - Central Project Office LWUA - Local Water Utilities Administration MDF - Municipal Development Fund MHS - Ministry of Human Settlements MLG - Ministry of Local Government MOF - Ministry of Finance MPWH - Ministry of Public Works and Highways NEDA - National Economic and Development Authority OBM - Office of Budget and Management Sangguniang Panglunsod - Local Elected Council FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY PHILIPPINES MUNICIPAL DEVELOPMENT PROJECT Loan and Project Summary Borrower: Republic of the Philippines Beneficiaries: Municipalities and cities in the Philippines Amount: $40.0 million equivalent (including the capitalized front- end fee) Terms: 20 years, including 5 years of grace, at the standard variable interest rate. Onlending Terms: The equivalent of $28.2 million of the loan proceeds would be relent by the Government through the Municipal Development Fund (MDF) to the project cities, at 14% for 20 years, including 5 years grace. These terms would be reviewed annually and any adjustments would be applicable only to the new cities applying for subloans from the MDF. The loan balance (excluding the capitilized front-end fee of $0.1 million) would be provided to various Government agencies as budgetary allocations. The Government will absorb all the standard financial charges and fees on the entire Bank loan in addition to the interest rate variations and the foreign exchange risk. Project Description: The proposed project would assist local governments in providing infrastructure and municipal services to a growing urban population by: (a) establishing a revolving fund, the MDF, to provide local governments with direct access to long-term development finance; (b) establishing a national-level technical intermediary to assist local governments identify investment priorities, evaluate project proposals for financing through the MDF and act as a liaison with national and external funding agencies; and (c) strengthening the local technical and financial capacity for project implementation and service management through a training program and organizational and fiscal reforms. The project includes financing for: (i) basic infrastructure including improvements for sanitation, drainage, slum areas, solid wastes management, roads, traffic management and bus terminals, and construction and upgrading of markets and slaughterhouses; (ii) infrastruc- ture maintenance operations; (iii) nation-wide tax mapping; (iv) training program; and (v) technical assistance for project implementation and structural reform studies. This document has a restricted distribution and may be used by recipients only in the performance of | their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - The project's main risks are related to timely availability of central government counterpart funds, fiscal weaknesses at the city level, and staffing and management in the technical intermediary. The Government's commitment to the project and the flexibility in the project to reduce investment programs in individual cities in line with financial constraints, provision of technical assistance, commitment to fiscal reform by the local governments and sanctions to be applied to nonperforming cities by the Ministry of Finance are, however, expected to minimize these risks.  - iii - Estimated Cost: Local Foreign Total -------$ million-------