proposed programmatic approach and policy- based loan … · republic of the philippines:...

Report and Recommendation of the President to the Board of Directors

Project Number: 49117-002 April 2017

Proposed Programmatic Approach and Policy-Based Loan for Subprogram 1 Republic of the Philippines: Facilitating Youth School-to-Work Transition Program

Distribution of this document is restricted until it has been approved by the Board of Directors. Following such approval, ADB will disclose the document to the public in accordance with ADB’s Public Communications Policy 2011 after excluding information that is subject to exceptions to disclosure set forth in the policy.

CURRENCY EQUIVALENTS (as of 21 April 2017)

Currency unit – peso/s (₽) ₽1.00 = $0.0200 $1.00 = ₽49.788

ABBREVIATIONS

ADB DOF DOLE DOT JSP LGU LMIS NEET OECD PESO PFM PQF SEnA SPES TA TESDA TVET

– – – – – – – – – – – – – – – – –

Asian Development Bank Department of Finance Department of Labor and Employment Department of Tourism JobStart Philippines Program local government unit labor market information system not in education, employment, or training Organisation for Economic Co-operation and Development public employment service office public financial management Philippine Qualifications Framework Single Entry Approach Special Program for the Employment of Students technical assistance Technical Education and Skills Development Authority technical and vocational education and training

NOTE

In this report, “$” refers to United States dollars. Vice-President S. Groff, Operations 2 Director General J. Nugent, Southeast Asia Department (SERD) Directors K. Bird, Public Management, Financial Sector and Trade Division,

SERD A. Inagaki, Human and Social Development Division, SERD

R. Bolt, Philippine Country Office, SERD

Team leaders K. Hattel, Financial Sector Specialist, SERD L. Perez, Education Specialist, SERD Team members R. Boothe, Public Management Specialist, SERD

C. de Vera, Operations Assistant, SERD J. Ghimire, Senior Counsel, Office of the General Counsel S. Ismail, Financial Sector Specialist, SERD R. Lacson, Senior Operations Assistant, SERD J. Mitra, Project Analyst, SERD S. Teoh, Country Specialist, SERD

Peer reviewers N. Chun, Economist, Economic Research and Regional Cooperation Department T. Rajadel, Education Specialist, Sustainable Development and Climate Change Department

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

CONTENTS

Page

PROGRAM AT A GLANCE

I. THE PROPOSAL 1

II. THE PROGRAM 1

A. Rationale 1

B. Impact and Outcome 7

C. Outputs 7

D. Development Financing Needs 8

E. Implementation Arrangements 9

III. DUE DILIGENCE 9

A. Economic and Financial 9

B. Governance 9

C. Poverty and Social 9

D. Safeguards 10

E. Risks and Mitigating Measures 10

IV. ASSURANCES 10

V. RECOMMENDATION 10

APPENDIXES

1. Design and Monitoring Framework 11

2. List of Linked Documents 14

3. Development Policy Letter 15

4. Policy Matrix 18

Project Classification Information Status: Complete

PROGRAM AT A GLANCE

Source: Asian Development BankThis document must only be generated in eOps. 17022017164419261828 Generated Date: 21-Apr-2017 10:54:01 AM

1. Basic Data Project Number: 49117-002Project Name Facilitating Youth School-to-Work

Transition Program, Subprogram 1Department/Division

SERD/SEHS

Country Philippines Executing Agency Department of Finance

Borrower Philippines

2. Sector Subsector(s) ADB Financing ($ million)Public sector management Economic affairs management 200.00

Education Technical and vocational education and training 100.00

Total 300.00

3. Strategic Agenda Subcomponents Climate Change Information Inclusive economic growth (IEG)

Pillar 2: Access to economic opportunities, including jobs, made more inclusivePillar 3: Extreme deprivation prevented and effects of shocks reduced (Social Protection)

Climate Change impact on the Project

Low

4. Drivers of Change Components Gender Equity and MainstreamingGovernance and capacity development (GCD)

Client relations, network, and partnership development to partnership driver of changeCivil society participationOrganizational development

Knowledge solutions (KNS)

Application and use of new knowledge solutions in key operational areasKnowledge sharing activities

Partnerships (PAR) Civil society organizationsImplementation

Private sector development (PSD)

Conducive policy and institutional environment

Effective gender mainstreaming (EGM)

5. Poverty and SDG Targeting Location ImpactGeographic TargetingHousehold TargetingSDG Targeting

YesNoYes

Urban High

SDG Goals SDG8

6. Risk Categorization: Complex .

7. Safeguard Categorization Environment: C Involuntary Resettlement: C Indigenous Peoples: C.

8. Financing

Modality and Sources Amount ($ million)

ADB 300.00 Sovereign Program (Regular Loan): Ordinary capital resources 300.00

Cofinancing 0.00 None 0.00

Counterpart 0.00 None 0.00

Total 300.00

9. Effective Development CooperationUse of country procurement systems YesUse of country public financial management systems Yes

I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on (i) a proposed programmatic approach for the Facilitating Youth School-to-Work Transition Program, and (ii) a proposed policy-based loan to the Republic of the Philippines for subprogram 1 of the Facilitating Youth School-to-Work Transition Program.1 2. The program supports the government’s efforts to roll out new innovative labor market programs that aim to shorten young Filipino’s school-to-work transition and raise youth employment rates, and represents a long-term partnership between the Asian Development Bank (ADB) and the government.2 The government’s priorities include (i) labor market programs made to work better for youth, (ii) training systems made to work better for youth, and (iii) labor market policies improved for the benefit of youth. The program is included in ADB’s country operations business plan, 2017–2019.3

II. THE PROGRAM A. Rationale 3. The development problem. The Philippines enjoyed strong economic growth between 2010 and 2016, averaging 6.3% per annum. This translated into solid job creation with wage employment expanding by an average of 3.7% per annum over this period and the overall unemployment rate falling to a historically low 4.7% by October 2016. While impressive, these gains have not been evenly distributed throughout the population. Overall poverty rates have declined only marginally to 21.6% in 2015 from 26.3% in 2009 and income inequality persists. 4 The Philippines has the highest household income inequality among all the Southeast Asian economies. The Gini index, which measures a country’s household income inequality, is high at 0.46 and is explained in part by unequal access to wage employment.5 4. The Philippines has a young population with an average age of 25 years. Therefore, creating wage jobs for youth is vital to reducing poverty and income inequality. The signs are encouraging. Reflecting new investments in services, skill shortages have arisen in the fast-growing business process outsourcing industry, financial and business services, and, most recently, in higher value-added manufacturing.6 5. Yet, the Philippines has a youth employment problem. Based on findings from an ADB survey of 500 households in Metro Manila and Cebu City, only 20% of high school graduates found a job within the first year of leaving school and only 60% of high school graduates were in employment 8 years after leaving school.7 In contrast, 75% of college graduates found a job within the first year of leaving school. As a result of this slow school-to-work transition, one in four young persons (25%) was not in employment, education, or training (NEET) in 2013, a rate in Southeast

1 The design and monitoring framework is in Appendix 1. 2 Youth is defined in the Philippine law as ages 15–30. 3 ADB. 2016. Country Operations Business Plan: Philippines, 2017–2019. Manila. 4 Government of the Philippines, National Statistics Office. 2014. Annual Poverty Indicator Survey. Manila. 5 According to the 2013 Philippines labor force survey, only 37% of total wage workers reside in households in the

bottom half of the income distribution. 6 PhilJobNet, a Department of Labor and Employment job vacancy database. http://philjobnet.gov.ph (7 March 2017). 7 Sector Assessment (Summary): Public Sector Management (accessible from the list of linked documents in Appendix

2).

http://philjobnet.gov.ph/

2

Asia second only to Indonesia’s.8 This rate is higher for young women (one in three) than for young men (one in five), because young women are more likely to withdraw from the labor market entirely (Figure 1a). Young women with low education attainment are most at risk of becoming NEET (one in two women), in part due to earlier childbearing and child-rearing than women with college education (Figure 1b). The rate of NEET is also highest among youth from low-income families, as they tend to be less educated, do not have quality social contacts, and do not have the life skills required to find long-term wage employment. This mismatch is occurring because the participation rates of the poor in education are low, labor market activation programs are weak and under-resourced, and skills training programs are underfunded and not targeted. In addition, men and women with low educational attainment and early spells in NEET are likely to have low lifetime earnings. ADB study shows that the rates of return on schooling have declined for wage workers from low-income households and increased for wage workers from high income households perpetuating income inequality (footnote 7).

Figure 1: Not in Employment, Education, or Training—

Rates by Gender, Education Level, and Age

6. The findings imply that policy interventions will be necessary to complement investments in the education of young persons from lower-income groups to reduce income inequality. Interventions should focus on lifting the poor’s rate of participation in education and improving the quality of public education in poorer areas and helping young people access skills training and employment facilitation services at the local government unit (LGU) to become job-ready. 7. Binding constraints. The government has identified a number of constraints to facilitating the youth school-to-work transition, including: (i) inadequate employment facilitation; (ii) weaknesses in post-high school training systems; and (iii) insufficient labor policies to promote decent employment (paras. 8–10). 8. Inadequate employment facilitation services. The public employment service offices (PESOs) are critically important for ensuring the effective implementation of active labor market programs in LGUs and for achieving job placement targets. Five main impediments affect effective employment facilitation in the Philippines. First, while the Philippines has established a network of PESOs through legislation enacted in 1999, the institutionalization of PESOs at the LGU level remains voluntary, underfunded, and under-resourced. Less than 300 out of 1,500 PESOs in 2014

8 The most recent aggregated data from the Labor Force Survey for 2016 shows a decline in overall NEET rate to

22% of the youth population.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

15 20 25 30 35 40 45 50 55 60 65

Male Female AllAge

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

15 20 25 30 35 40 45 50 55 60 65

Less than high school High school College

Age

(% of total population group)

Source: Labor Force Survey, October 2013.

b. Women by educational attainment % a. Men and women %

3

have been institutionalized at the LGU level with permanent staff and budget, and this impedes the delivery of employment facilitation to youth requiring these services. Moreover, youth in rural areas do not have access to basic employment services. Second, international best practice shows that effective youth employment programs are employer demand-driven and provide an integrated set of services to youth.9 In the Philippines, current labor market programs do not offer a full cycle of employment facilitation services targeted at youth, and especially young women, such as career guidance, life skills training, technical training, and internships or placements with employers. The government does have youth employment programs, which mainly focus on scholarships and training. However, these programs have design weaknesses that limit the potential for further scaling up nationally.10 For example, the government’s Special Program for the Employment of Students (SPES) requires LGUs to contribute 25%–60% of the cost of the program, irrespective of their fiscal capacity.11 Third, employment programs are not effectively targeting young women with high school or lower education despite this group being most at risk of gaining NEET status. For example, there are no quotas set for women beneficiaries in SPES and the Government Internship Program (GIP) contributing to underrepresentation of young women in these programs (footnote 11). Fourth, several line departments and agencies implement labor market activation programs in an uncoordinated manner, therefore, limiting the potential for synergies in a cost-effective way. Recent international good practice is to amalgamate similar programs under the relevant line department. Fifth, the labor market information system (LMIS) needs upgrading to capture a larger pool of vacancies, skills, and better outreach to youth nationally and in local communities. 9. Weakness in post-high school training systems. A deficient apprenticeship program and insufficient funding for workplace skills have resulted in underinvestment in skills training of workers and jobseekers. For example, a 2015 ADB survey found that 80% of employers in tourism do not have a training policy for their employees.12 While the Philippines has established a good institutional setup for technical and vocational education and training (TVET), the development of an integrated Philippine Qualifications Framework (PQF) is still in its early stages of implementation with basic education under the Department of Education, technical and vocational education under the Technical Education and Skills Development Authority (TESDA), and higher education under the Commission for Higher Education.A coordination board, supported by a presidential executive order, has been established to facilitate an integrated PQF, but it has not been fully operationalized. The Philippines apprenticeship program and the dual training system are important mechanisms for skills development and addressing the slow transition to work. However, take-up of the programs by youth and employers is low with only 28,000 new apprentices in 2015. Apprenticeships are limited to 6 months; there is no certification process, and the inadequate involvement of industry associations in the design of apprenticeship programs explains this poor take-up of apprenticeships. For funding of skills in the workplace, TESDA has a skills fund but it has not been activated and other TESDA funding schemes have been implemented on an ad hoc basis and are not driven by employer demand. 10. Insufficient labor policies to promote decent employment. The government is committed to creating decent employment for young people and has identified a set of constraints to achieving this goal. First, there is a need to promote and incentivize employer compliance with labor standards including occupational safety and health. Second, the Philippines dispute

9 Organisation for Economic Co-operation and Development (OECD). 2013. OECD Employment Outlook 2013. Paris. 10 Labor Market Programs in the Philippines (accessible from the list of linked documents in Appendix 2). 11 SPES offers poor students financial support through 3 month internships aimed at keeping them in education. From

2010 to 2013, SPES had assisted 493,742 poor students, of which 42.5% were women. GIP provides college students with internships in government. From 2012 to 2015, the GIP assisted 34,625 college students.

12 ADB. 2015. Tourism Employment and Skills Needs in the Philippines: Projections to 2018. Manila.

4

resolution process is highly litigious leading to an excessively lengthy and costly dispute settlement process. This has deterred many employers from hiring youth on a regular contract. To address this problem, the government piloted a 30-day mandatory conciliation–mediation service for all labor and employment disputes, known as the Single Entry Approach (SEnA), with the goal to resolve the dispute in 30 days. Following positive results from the pilot, legislation was enacted in 2013 institutionalizing SEnA. Effective implementation of the reform is critical to reducing the cost of disputes. Third, there is no unemployment insurance to provide temporary income security during a worker’s job-to-job transition. 11. Government reform agenda. The government’s Philippine Development Plan, 2017–2022 has prioritized youth employment. The government’s approach to employment is categorized into three pillars: (i) education and skills development, (ii) job creation, and (iii) labor market activation. Under the first pillar, the main ongoing reform is the K to 12 program, which provides high school graduates with the skills necessary to find jobs. By adding 2 years to high school, the K to12 reforms will help to accelerate the school-to-work transition for many youths. However, international experience shows basic education reforms alone will not be sufficient to assist all out-of-school youth to integrate into the labor market. Further education and training and labor market activation programs will be necessary. The government is also looking at strengthening the TVET system by promoting an integrated qualifications and quality assurance framework, reforming the apprenticeship system, and looking at new ways to fund skills training in the workplace. Under the job-creation pillar, priority interventions are a national competition policy, investment climate reforms, capital market development, and increased public and private investment in infrastructure. Under the labor market activation pillar, the government’s strategy is to restructure the PESOs, reform active labor market programs, roll out new services to assist out-of-school youth and the unemployed, and link these services together to achieve better impact. 12. ADB’s experience. ADB has supported government reforms to promote employment creation through loan programs, investment project loans, technical assistance (TA) grants, and knowledge products (Figure 2). In the 1990s, ADB was instrumental in the establishment of TESDA and other supply side initiatives around TVET. Most recent programs include the Senior High School Support Program Loan, 2014–2019, which supports the government’s K to 12 program.13 Since 2011, ADB has supported the government’s employment facilitation agenda through the Increasing Competitiveness for Inclusive Growth Program, 2011–2014 and two large TA projects financed by the Government of Canada.14 These TA projects helped the government to successfully pilot the JobStart Philippines Program (JSP) in four LGUs, pilot a workplace skills funding scheme in tourism, and carry out impact assessments on several main labor regulations and programs (Apprenticeship, SPES and PESOs) helping lay the analytical foundations for the program.15 An ADB capacity development TA, also financed by the Government of Canada for $7.5 million, was approved in October 2015 and will help the Department of Labor and Employment (DOLE) establish the institutional setup for the nationwide rollout of JSP, provide capacity development to PESOs as well as the LMIS that will support this rollout, and fund life

13 ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Results-Based Loan

to the Republic of the Philippines for the Senior High School Support Program. Manila. 14 ADB. 2013. Technical Assistance to the Republic of the Philippines for Employment Facilitation for Inclusive Growth.

Manila; ADB. 2013. Technical Assistance to the Republic of the Philippines for Improving Competitiveness in Tourism. Manila; and ADB. 2014. Report and Recommendation of the President to the Board of Directors: Proposed Policy-Based Loan for Subprogram 2 to the Republic of the Philippines for the Increasing Competitiveness for Inclusive Growth Program. Manila.

15 JobStart Philippines Program Overview (accessible from the list of linked documents in Appendix 2).

5

skills training for youth participating in JSP. 16 The program will support the government to restructure the PESOs and labor market programs, roll out new services, strengthen workplace skills training system, and provide interventions to support the government’s employment agenda. The program supplements ADB’s other interventions in support of the government’s job-creation agenda through a capital market program that supports reforms to deepen the capital market in support of infrastructure financing.17 ADB also has introduced a program to increase public and private participation in infrastructure.18

13. Lessons learned from experience. Addressing the out-of-school youth employment problem requires a comprehensive strategy covering labor market activation programs, skills training for out-of-school youth, labor market policies that improve youth access to employment, and effective gender mainstreaming of programs. A second lesson is that pilot projects testing new strategies are an important part of policy development and building stakeholder support for institutional reforms. A third lesson is that there should be strong government ownership and widespread political will. Developing and designing programs in close collaboration with the government and other key stakeholders is critical to the successful implementation of activities and for the achievement of policy measures. Based on these lessons, ADB is taking an integrated approach to youth employment with the program, extensively engaging with stakeholders, electing key representatives to a national program steering committee, and focusing program implementation at the LGU level.19 14. ADB’s value added to the program design and implementation. ADB has provided direct support to the development of this program and its reforms. Under the TA to DOLE (footnotes 14 and 16), ADB helped to design, develop, and pilot the JSP and is currently supporting the nationwide rollout of the JSP. ADB has helped DOLE enhance its LMIS which

16 ADB. 2015. Technical Assistance to the Republic of the Philippines for Support for the Nationwide Rollout of JobStart

Philippines. Manila; ADB. 2017. Major Change in Technical Assistance: Support for the Nationwide Rollout of JobStart Philippines. Manila.

17 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic Approach and Policy-Based Loan for Subprogram 1 to the Republic of the Philippines for Encouraging Investment through Capital Market Reforms. Manila.

18 ADB. 2015. Report and Recommendation of the President to the Board of Directors: Proposed Programmatic Approach and Policy-Based Loan for Subprogram 1 to the Republic of the Philippines for Expanding Private Participation in Infrastructure Program. Manila.

19 Program Stakeholders Assessment (accessible from the list of linked documents in Appendix 2).

Figure 2: ADB’s Engagement in Employment Facilitation Reform Agenda

2011: Technical Assistance Grant for Strengthening Institutions for an Improved Investment Climate

2011–2014: Loan for Increasing Competitiveness for Inclusive Growth Program

2013: Technical Assistance Grant for Facilitation of Employment Facilitation for Inclusive Growth and Technical Assistance Grant for Increasing Competitiveness in Tourism

2015–2020: Technical Assistance Grant for Support for the Nationwide Rollout of JobStart Philippines

2014–2019: Loan for Senior High School Support Program

2015–2022: Loan for Facilitating Youth School-to-Work Transition Program

ADB = Asian Development Bank. Source: Asian Development Bank.

6

includes an upgraded national skills registry and an enhanced job portal—PhilJobNet—providing a database of vacancies, and developed and implemented the localized PESO Employment Information System (PEIS). Under the TA to the Department of Tourism (DOT) (footnote 14), ADB supported the design, development, and piloting of a tourism skills funding scheme. Through ADB’s regulatory impact assessment program, assistance was provided for the review and draft amendments to reform the PESO Act, SPES Act, and the Apprenticeship Act. ADB is assisting the government design an enterprise-led learning network scheme that would provide grants to clusters of employers to fund short-term skills training of their employees and jobseekers. While currently not included in the program, the TA also helped DOLE examine options for developing an unemployment insurance scheme. 15. The results have been impressive. In 2015, the government enacted a new PESO Act that mandates the institutionalization of PESOs and secures budget funding. In 2016, the government enacted reforms to the SPES Act that provides a wage subsidy to poor students and enacted the Act Institutionalizing the Nationwide Implementation of the JobStart Philippines Program and Providing Funds Thereof (JSP Act) to institutionalize the JSP and ensure the program’s financial sustainability. The government also submitted to Congress amendments to the Apprenticeship Act. In 2016, the JSP had been rolled out to 14 cities and municipalities in Luzon, Visayas, and Mindanao. An additional 10 LGUs will join the JSP each year from 2017 to 2020. The DOT is also rolling out its industry skills funding scheme. The government has included the proposed enterprise-led learning network scheme as a program in the Philippine Development Plan, 2017–2022. 16. The programmatic approach and policy-based loan. ADB chose the programmatic approach through a policy-based loan over other financing modalities to help sustain the government’s reforms and financing to lift youth wage employment rates over the long term. The programmatic approach will also leverage the government budget in support of these reforms to ensure sustainability. The program will comprise two subprograms covered by a medium-term results framework, reflecting continuous engagement between ADB and the government on youth employment. A third subprogram is optional, and its implementation is based on the government’s request. A project investment may be considered during subprogram 2 formulation. 17. Development partner coordination. The Government of Canada has been instrumental in the development and support of the program, funding three large TA projects (footnotes 14 and 16). Pilots developed under these TA projects are now being rolled out nationally. ADB worked with the Organisation for Economic Co-operation and Development to jointly develop a youth employment and skills report in 2016.20 ADB is also collaborating with the World Association of Public Employment Services in support of capacity development of the PESOs. Other development agencies that are involved in supporting this agenda include the International Labour Organization, which is helping with policy development and the United States Agency for International Development, assisting with industry road maps. 18. Economic impact of the program. The three outputs of the program together are expected to increase the number of youth employed with higher earnings and in more productive jobs. Potential economic gains are to be achieved through (i) reform of employment facilitation that increases the placement rates of out-of-school youth into jobs with higher earnings, and (ii) efficiency gains from the development of public–private partnerships in implementing labor market and skills programs at the local government level (para. 27).

20 ADB and OECD. Forthcoming. OECD Reviews on Local Job Creation Employment and Skills Strategies in the

Philippines.OECD Publishing, Paris.

7

B. Impact and Outcome 19. The impact will be increased wage employment rate for the country’s youth. The outcome will be a shortened school-to-work transition period for youth. The program will include a series of policy reforms and interventions to raise the youth employment rate and is designed to deliver three outputs. All 14 policy measures under subprogram 1 (January 2015–October 2016) have been accomplished. Subprogram 2 will include 7 prior expected actions and 8 policy milestones.21 C. Outputs 20. Output 1: Labor market programs made to work better for youth. This output will support the government’s efforts to restructure its PESO and labor market activation programs and roll out new services to assist the youth to find decent employment. Accomplishments under subprogram 1 include the following: in 2015, the government enacted amendments to the PESO Act, which now mandates the institutionalization of PESOs in LGUs, secures budgetary funding through the internal revenue allocation, and sets minimum service standards. In support of this reform, the government commenced capacity development of LGUs and allocated national government funding for this purpose. The government (through DOLE) also commenced the implementation of its new LMIS, which includes an upgraded national skills registry, PhilJobNet and PEIS. In the area of labor market activation, the government introduced two major reforms. The first reform is the institutionalization of the JSP. The government enacted legislation that mandates the rollout of the program to all LGUs, secures national government budget funding for the program—including grants to employers for taking on youth—life skills training, and develops capacity of PESOs. In support of this reform, DOLE signed memorandums of understanding with 14 LGUs to implement JSP in 2016 and the first round of youth intakes was completed. The JSP has mainstreamed gender considerations. Life skills training incorporate modules on young women health and reproductive health, and a minimum quota of 55.0% of all JSP beneficiaries must be women. The second major reform was to amend the SPES Act with the aim of strengthening its design and scale-up. A key reform was to provide poor students with a wage subsidy of which the LGU’s share would be based on its fiscal capacity. 21. For subprogram 2 (November 2016–March 2019), the government will focus on implementing reforms with quantitative targets to demonstrate results and impact. Under subprogram 2, 800 PESOs will be institutionalized with permanent staff and budget, capacity development and LMIS, 34 LGUs implementing JSP reaching at least 15,000 cumulative beneficiaries, minimum quotas for young women participating in JSP and SPES, and sufficient budget allocations to PESOs and programs. Subprogram 2 will support the government in rationalizing existing employment and training programs, and implement a monitoring and evaluation system for all employment programs to allow for evidence-based improvement to programs. The government will also develop concept and plans for the establishment of a job center at the national level as a one-stop center for capacity building to PESO staff. 22. Output 2: Training systems made to work better for youth. This output supports the government’s reforms to give young people better access to workplace skills development by strengthening the PQF, reforming the apprenticeship program, and partnering with employers for skills development. Accomplishments under subprogram 1 included the following. First, the government (through TESDA) enhanced the PQF by implementing the higher level TVET qualifications (National Certificate III to National Certificate V-Diploma) linked to core competency needs of local industries and adopted TVET quality assurance instruments such as the STAR

21 Prior expected actions are considered disbursement conditions and policy milestones strengthen the program.

8

Rating System, the Asia Pacific Accreditation Certification Commission, and the East Asia Summit TVET Quality Assurance Framework. Second, the government (through TESDA) submitted to Congress draft amendments to the Apprenticeship Act system to set the duration of apprenticeships based on skills needed, include certification of apprentices and curriculum with a mix of academic-based learning and workplace and occupational training, and make the development of apprenticeship programs industry-driven. Third, the government enacted the Republic Act 10771, the Philippine Green Jobs Act of 2016, to provide incentives to business enterprises that generate and sustain green jobs. Fourth, the government, through DOLE and in coordination with industry groups and TESDA, developed sector-based human resources development action plans in tourism, information and communications technology, manufacturing, and agribusiness. The tourism action plan is further advanced and included the creation of the Office of Industry Manpower Development with designated staff and budget, and the establishment of the tourism skills training grant scheme. 23. For subprogram 2, the government will focus on institutionalizing reforms such as submitting to Congress a bill to institutionalize the PQF and coordinating body and development. The government will also lead the roll-out of the employer-led learning network and training grants in tourism and other sectors with promising employment prospects identified by the industry road maps. Subprogram 2 will also implement reforms to the dual training system and the apprenticeship program and start a call for apprenticeship program proposals from industry groups. 24. Output 3: Labor market policies improved for the benefit of youth. This output will support the government’s agenda to promote decent employment. Under subprogram 1, the government implemented its new legislated mandatory 30-day conciliation–mediation mechanism (SEnA) for resolving unfair dismissal disputes. As of 2015, 108,234 cases were resolved under the SEnA mechanism, thereby reducing the number of cases going through arbitration. For subprogram 2, the government will continue to implement the new SEnA mechanism and explore additional reforms to promote its decent employment agenda such as unemployment insurance. D. Development Financing Needs 25. The government has requested a regular loan of $300 million from ADB’s ordinary capital resources to help finance subprogram 1. The loan will have a 15-year term, including a grace period of 3 years, an annual interest rate determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions as set forth in the draft loan agreement. Based on the annuity method (30% discount factor), the average maturity is 12 years and there is no maturity premium payable to ADB. The loan proceeds will be used to finance foreign exchange of economy-wide imports, excluding ineligible items and imports financed by other bilateral and multilateral sources. The proceeds of the policy-based loan will be disbursed upon effectiveness in accordance with ADB’s Loan Disbursement Handbook (2015, as amended from time to time). 26. In 2017, the gross development financing needs is planned at $12.6 billion with a budget deficit projected at 3.0% of GDP. The government plans to raise $10.1 billion equivalent primarily from the domestic bond market and $2.6 billion from foreign loans, of which $1.4 billion is program loans from development partners. The loan size is based on the financing needs of the Philippines, the strength of the reform program, and the development expenditures arising from the program such as national government budget allocations to scale up employment programs (para. 28).

9

E. Implementation Arrangements 27. The Department of Finance (DOF) will be the executing agency. DOLE, TESDA, DOT, Department of Trade and Industry, and LGUs (through PESOs), will be the implementing agencies. A steering committee will oversee implementation, chaired by the DOF, with the implementing agencies and the National Economic and Development Authority and the Department of Budget and Management as members. Other stakeholders from employers and youth groups will participate from time to time. The implementation periods are January 2015–October 2016 for subprogram 1 and November 2016–March 2019 for subprogram 2. The policy-based loans will be disbursed upon accomplishment of policy triggers.

III. DUE DILIGENCE A. Economic and Financial 28. The program impact assessment estimates potential net benefits (benefits minus cost) of the program to be about $0.4 billion in present value.22 This gives a benefit–cost ratio of about 1.4. These direct benefits of about $1.5 billion in present value are due to more youths being employed, and higher earnings of youth in more productive jobs. Costs of about $1.1 billion in present value are expected be incurred from scaling up SPES, rolling out JSP and institutionalizing 800 PESOs. The interventions also yield significant distributional benefits, as a majority of beneficiaries are young women and economically disadvantaged youth. B. Governance 28. The government has implemented major reforms to improve the public financial management (PFM) systems. A proposed Public Financial Accountability Act will help to enforce accountability in PFM by strengthening Congress’ financial control funding, instituting an integrated PFM system, and increasing budget transparency and participation. ADB’s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and the DOF. The government is implementing a comprehensive and results-based anticorruption action plan, drawing on a review of the National Anti-Corruption Plan of Action. Various initiatives by development partners to strengthen the capacity of the Office of the Ombudsman and the justice sector have achieved positive results. C. Poverty and Social 29. Subprogram 1 is categorized effective gender mainstreaming. NEET rates are higher among young women than young men. The program aims to address this gender employment gap through policy measures and interventions, including setting quotas for young women participating in SPES and skills training programs, and a target of 55% for young women accessing services under JSP. Further development of a life skills training health module will include issues specific to women’s health and reproductive health. Overall, it is estimated that women may account for 80% of the benefits arising from the program (footnote 22). While interventions through the program will benefit a wide range of youth, they may also contribute directly and/or indirectly to a reduction in income inequality through program targeting of youth from low-income households and higher youth employment rates.

22 Program Impact Assessment (accessible from the list of linked documents in Appendix 2).

10

D. Safeguards

30. In accordance with ADB’s Safeguard Policy Statement (2009), the program is classified category C for the environment, involuntary resettlement, and indigenous peoples. The assessment of policy actions concludes that no safeguard policies are triggered. Based on an assessment of the policy actions, the policy-based loan component will not have any potential involuntary resettlement and indigenous peoples issues and will not have any potential environmental impacts.

E. Risks and Mitigating Measures

31. Public financial management and corruption are assessed as substantial risks. These national-level risks are being mitigated through strengthening the budget review process, institutionalized transparency, and additional measures supported by ADB including the enhancement of legislative oversight over anticorruption bodies. Contextual risks include the possibility that the government may not secure sufficient national budgetary funding for youth employment and skills training. The JSP Act institutionalizing JSP and amendments to the PESO Act and the SPES Act will help ensure the programs continue to support youth employment and skills development in the future. Other contextual risks that local governments’ may lack capacity and resources at the LGU level to implement these programs are mitigated through recent legislation securing budgetary funding for programs and continuity in TA by ADB to national and local government staff implementing the programs. All risks and mitigating measures are described in the risk assessment and risk management plan.23

IV. ASSURANCES

32. The government and the DOF have assured ADB that implementation of the program shall conform to all applicable ADB policies including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the loan agreement.

V. RECOMMENDATION

33. I am satisfied that the proposed programmatic approach and policy-based loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and, acting in the absence of the President, under the provisions of Article 35.1 of the Articles of Agreement of ADB, I recommend that the Board approve

(i) the programmatic approach for the Facilitating Youth School-to-Work Transition Program, and

(ii) the loan of $300,000,000 to the Republic of the Philippines for subprogram 1 of the Facilitating Youth School-to-Work Transition Program, from ADB’s ordinary capital resources, in regular terms, with interest to be determined in accordance with ADB’s London interbank offered rate (LIBOR)-based lending facility; for a term of 15 years, including a grace period of 3 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan agreement presented to the Board.

Stephen Groff Vice-President

21 April 2017 23 Risk Assessment and Risk Management Plan (accessible from the list of linked documents in Appendix 2).

Appendix 1 11

DESIGN AND MONITORING FRAMEWORK

Impact the Program is Aligned With Wage employment rate for the country’s youth increased (Philippine Development Plan, 2017–2022)a

Results Chain

Performance Indicators with Targets and Baselines

Data Sources and Reporting Mechanisms Risks

Outcome School-to-work transition period for youth shortened

By 2022: For young women: a. NEET rate decreased by 10 percentage points (2010–2013 baseline: NEET rate of 50% for youth with high school graduation) b. The median duration of the youth school-to-work transition decreased by 1 year (2008 baseline: high school graduates take on average 4 years to find a wage job) c. Youth wage employment rate 1 year from leaving school increased by 15 percentage points (2008 baseline: Employment rate is 20.0% for high school graduates 1 year since leaving high school) For young men: d. Youth wage employment rate 1 year from leaving school increased by 10 percentage points (2008 baseline: Young men employment rate is 30.0% for high school graduates 1 year from leaving high school)

a. National labor force survey, 2010 to 2020 b–d. Asian Development Bank household surveys in Manila and Cebu, 2018 and 2022

The government may not secure sufficient national budgetary funding for youth employment programs.

Outputs 1. Labor market programs made to work better for youth

Subprogram 1 (by 2016) 1a. 14 LGUs signed MOUs with DOLE to implement JSP (2014 baseline: 4) 1b. At least 150 DOLE and PESO staff trained in JSP and employment facilitation implementation (2014 baseline: 20) 1c. At least 5,000 out-of-school youth entered JSP, of whom at least 55% are women (2014 baseline: 900) 1d. Bills on PESO and JSP institutionalization filed in Congress (2014 baseline: 0) 1e. LMIS action plan endorsed (2014 baseline: 0). Subprogram 2 (by 2019) 1f. A total of 34 LGUs sign MOUs with DOLE to implemented JSP

1a. Signed MOUs 1b. JSP Unit annual reports 1c–1e. PEIS summary reports on JSP youth beneficiaries 1f. Signed MOUs

LGUs allocate insufficient budgetary and staff resources to PESOs to implement JSP, which is time-intensive.

12 Appendix 1

Results Chain



(2014 baseline: 4) 1g. At least an additional 400 DOLE and PESO staff trained in JSP implementation and employment facilitation (2014 baseline: 20) 1h. Cumulative total of at least 15,000 out-of-school youth entered JSP, of whom at least 55% are women (2014 baseline: 900) 1i. At least 30% of out-of-school youth entering JSP are beneficiaries of the Special Program for the Employment of Students 1j. Implementing rules for PESO Act and JSP Act implemented with national government budget appropriations (2014 baseline: 0) 1k. LMIS implementation ongoing (2014 baseline: 0)

1g–1i. JSP Unit annual reports 1j–1k. PEIS summary reports on JSP youth beneficiaries

2. Training systems made to work better for youth

Subprogram 1 (by 2016) 2a. Higher level TVET qualifications linked to core competency needs endorsed and implementation initiated (2014 baseline: 0) 2b. Quality assurance TVET instruments endorsed and implemented (2014 baseline: 0) 2c. Amendments to the Apprenticeship Act submitted to Congress (2014 baseline: 0) 2d. Human resource development road map for IT-BPM outsourcing industry, manufacturing, tourism, and agribusiness sectors endorsed and implementation initiated (2014 baseline: 0) 2e. Tourism skills training grant scheme implemented, with women comprising at least 45% of the total trainees Subprogram 2 (by 2019) 2f. Draft bill institutionalizing the Philippine Qualifications Framework submitted to Congress (2014 baseline: 0) 2g. National government budget appropriations provided for TESDA’s Skills Development Fund for capacity development of enterprises and LGUs (2014 baseline: 0) 2h. New apprenticeship programs proposed by industry training boards or associations (2014 baseline: 0)

2a–2c. TESDA reports 2d. Industry reports on business process outsourcing

2e. DOT reports 2f–2h. TESDA reports

The government may not secure sufficient national budgetary funding for skills training.

Appendix 1 13

Results Chain



2i. Total of 20,000 tourism workers access skills development under the tourism skills development scheme, 45% of whom are women (2014 baseline: 2,500) 2j. Tourism skills training grant scheme implemented nationwide (Baseline: 4 pilot areas from 2014–2015) 2k. IT-BPM Human Resource Development program implemented with industry associations (2014 baseline: 0)

2i–2j. DOT reports 2k. DOLE reports

3. Labor market policies improved for the benefit of youth

Subprogram 1 (by 2016) 3a. Increased share of dismissal-related disputes resolved through mediation and conciliation (SEnA process 2015 baseline: 108,234 cases resolved) Subprogram 2 (by 2019) 3b. Increased number of disputes resolved through SEnA (2014 baseline: 24,533)

3a. DOLE reports and SEnA reports 3b. SEnA reports

Key Activities with Milestones Not applicable.

Inputs Asian Development Bank: $300 million policy-based loan for subprogram 1 (ordinary capital resources) and $300 million indicative for subprogram 2 Assumptions for Partner Financing Not applicable.

DOLE = Department of Labor and Employment; DOT = Department of Tourism; IT-BPM = information technology-business processing management; JSP = JobStart Philippines Program; LGU = local government unit; LMIS = labor market information system; MOU = memorandum of understanding; NEET = not in employment, education, or training;

PEIS = PESO Employment Information System; PESO = public employment service office; SEnA = Single Entry Approach; TESDA = Technical Education and Skills Development Authority. a Government of the Philippines. 2017. Philippine Development Plan, 2017–2022. Manila. Source: Asian Development Bank.

14 Appendix 2

LIST OF LINKED DOCUMENTS http://www.adb.org/Documents/RRPs/?id=49117-002-3

1. Loan Agreement

2. Sector Assessment (Summary): Public Sector Management

3. Contribution to the ADB Results Framework

4. Development Coordination

5. Country Economic Indicators

6. International Monetary Fund Assessment Letter

7. Summary Poverty Reduction and Social Strategy

8. Risk Assessment and Risk Management Plan

9. List of Ineligible Items

Supplementary Documents

10. Program Impact Assessment

11. Public Financial Management Assessment

12. Program Stakeholders Assessment

13. Labor Market Programs in the Philippines

14. JobStart Philippines Program Overview

Appendix 3 15

DEVELOPMENT POLICY LETTER

16 Appendix 3

Appendix 3 17

18 Appendix 4

POLICY MATRIX Facilitating Youth School-to-Work Transition Program

Policy Actions Accomplishments Under Subprogram 1

(Jan 2015–Oct 2016) Triggers in bold

Subprogram 2 (Nov 2016 to March 2019)

Triggers in bold

Medium-term direction and

expected results (2015 to 2022)

1. Labor market programs made to work better for youth

1.1 Transforming public employment service offices ADB TA 8335 “Facilitating Employment for Inclusive Growth” (financed by the Government of Canada for $5.5 million)

The government has implemented reforms aimed at restructuring public employment service offices (PESOs) to improve employment service delivery to young people and increase job placement rates. These accomplishments included: 1. The government enacted Republic Act (RA) No.

10691 to mandate the institutionalization of PESOs in all strategic cities and municipalities (local government units or LGUs), set minimum standards for PESO operations and staff complements, and secure national and local government budgetary funding for PESOs operations and programs.

2. The government through the General Appropriations Act (GAA) allocated P95 million for PESO capacity development in 2015 and 2016.

3. Capacity development plan for PESOs endorsed by

DOLE and implementation commenced in 2016.

4. The government (through DOLE) commenced implementation of its enhanced national Labor Market Information System (LMIS) starting with an upgraded national skills registry and the enhanced job portal PhilJobNet.

The government continued institutional reforms and capacity development to PESOs. 1. Eight hundred (800) PESOs

institutionalized under RA No. 10691, up from 390 in 2015, and received capacity development under DOLE’s plan.

2. The government through the GAA and

LGUs through the Internal Revenue Allocation (IRA) allocated sufficient budget to PESOs operations and programs in 2017 and 2018.

3. The government (through DOLE)

endorsed the design and establishment of the Job Center at the national level as a one stop center for capacity building to PESO staff, public dissemination of labor market activation programs, and employment services to youth.

4. DOLE implemented its enhanced LMIS in

800 PESOs. Data disaggregated by sex.

1,500 PESOs institutionalized under RA No. 10691, received capacity development assistance, and implemented LMIS.

2 million young

jobseekers placed in employment through PESOs.

Appendix 4 19

Policy Actions Accomplishments Under Subprogram 1 (Jan 2015–Oct 2016)

Triggers in bold


Triggers in bold



1.2 Restructuring labor market activation programs ADB TA 8984 “Support for Nationwide Rollout of JobStart Philippines Program (ADB TASF - $1.3 million and Government of Canada proposed cofinancing of $10.0 million)

The government has strengthened its labor market activation programs to better target beneficiaries and increase program outcomes. Accomplishments included: 5. The government institutionalized the JobStart

Philippines (JSP) youth employment program through enacting the JSP Bill securing national government budget funding, and DOLE through Department Order no. 148-16 established the national JSP Unit with designated staff and 2016 budget of P106 million to oversee JSP implementation.

6. The government (through DOLE) commenced the nationwide rollout of JSP starting with 14 local government units in Luzon, Visayas, and Mindanao. Fifty-nine percent (59%) of JSP participants are women.

7. The government strengthened the Special

Program for Employment of Students (SPES) by enacting RA No. 10917 to provide for a government funded wage subsidy to poor students based on the financial capacity of each LGU, and the 2015 and 2016 GAA allocated P1.4 billion for funding the SPES program.

The government continued strengthening labor market activation programs. 5. The JSP rolled out to 34 LGUs with a

cumulative total of at least 15,000 out-of-school youth accessing JSP services with 150 employers. 55% of beneficiaries are women and 70% are from low income households.

6. The government (through DOLE)

enhanced the operation of the SPES program by (i) Government Policy issued to implement administrative reforms to improve financial management and targeting of beneficiaries, (ii) linking SPES with JSP and other programs, and (iii) Government allocated sufficient funding for SPES in the 2017 and 2018 GAA, targeting an increased number of beneficiaries, including women.

7. As part of government efforts to improve

coherence of various employment programs, the government (through DOLE) rationalized programs on employment and training.

8. DOLE established an integrated

monitoring and evaluation system for all employment programs under DOLE (JSP, SPES, Government Internship Program or GIP.).

JSP rolled out to at least 50 LGUs and cumulatively 40,000 young people accessed services under JSP, of which at least 55% are women, 70% beneficiaries are from low income households including CCT beneficiaries.

500,000 young

people accessed SPES program, of which at least 50.0% are women.

200,000 young

people accessed other labor market and employment programs (GIP etc).

20 Appendix 4


Triggers in bold


Triggers in bold



2. Training systems made to work better for youth

2.1 Improving national qualifications framework and public funding for skills training

The government further enhanced its training system with a focus on improving the national qualification system for skills training. Accomplishments included: 8. TESDA developed and implemented the Higher Level

Technical and Vocational Education and Training (TVET) Qualifications (National Certificate (NC) III to NC V-Diploma) linked to core competency needs of local industries and ASEAN, and 21st century skills integrated in the basic and common competencies at all qualification levels.

9. TESDA strengthened Quality Assurance (QA) System

among technical vocational institutions through adoption of QA TVET instruments such as the STAR Rating System, the Asia Pacific Accreditation Certification Commission (APACC) and the East Asia Summit TVET Quality Assurance Framework.

The government implemented its Philippine Qualifications Framework.

9. The government submitted to Congress a draft bill institutionalizing the Philippine Qualifications Framework (PQF) including the creation of a coordinating body to operationalize the PQF.

10. The government through the 2018 GAA

provided sufficient budget funding for TESDA’s Skills Development Fund for capacity development of enterprises and local government units on trainers training and curriculum development.

PQF Bill enacted and PQF coordinating body operationalized.

2.2 Strengthening industry skills development programs and funding ADB TA 8334 Improving Competitiveness in Tourism (financed by the Government of Canada for $7.0 million)

The government implemented human resource development strategies for growth sectors with the objective of improving access to and funding for industry skills training programs. Accomplishments included: 10. The government (through TESDA) submitted to

Congress amendments to the Apprenticeship Act to (i) include certification of apprentices and curriculum reflecting a mix of academic-based learning, workplace-and occupational training, (ii) set the duration of the training based on the complexity of the skills to be learned by the apprentice, (iii) provide recommendations by industry training boards for apprenticeable occupations, and (iv) established institutional safeguards of apprenticeships.

The government continued implementation of sector human resource development strategies. 11. The government implemented reforms

to the apprenticeship program with the aim of increasing uptake by employers.

12. TESDA implemented reforms to the Dual Training System (DTS) with the aim to improve its uptake by employers in manufacturing sector.

The government (through TESDA) called for proposals from Industry Training Boards or industry associations for new apprenticeship programs.

Appendix 4 21


Triggers in bold


Triggers in bold



11. The government (DOLE) in collaboration with industry associations (including tourism, BPO, manufacturing, and agro-business) has produced human resource development plans based on DTI’s industry roadmaps which includes the skills and training requirements and recommended policies and programs.

12. The government enacted Republic Act 10771 or

the Philippine Green Jobs Act of 2016, the policy measure providing incentives to business enterprises that generate and sustain green jobs.

13. The government (through DOT) has commenced

implementation of its human resource development program in tourism including the: (i) creation of the Office of Industry Manpower Development with designated staff and budget, and (ii) establishment of the tourism skills training grant scheme with at least 45% target for women trainees.

13. The government, in collaboration with industry associations, commenced implementation of the IT-BPM human resource development program and developed national green jobs human resource development plan.

14. The government (through DOT)

implemented the tourism skills training grant scheme nationwide by (i) facilitating the establishment of employer training networks across the country and (ii) through the 2017 and 2018 GAAs allocated approximately P150 million to fund the training grant scheme targeting approximately 20,000 tourism employees and jobseekers for training of which at least 45% are women.

At least 80,000 young people accessed apprenticeship program, of which at least 25.0% are women (mostly in manufacturing sector).

150 employer

training networks established and 100,000 tourism workers and job seekers trained under the tourism skills training grant program.

At least 70,000

young people access pre-hire training in the IT-BPM.

22 Appendix 4


Triggers in bold


Triggers in bold



3. Labor market policies improved for the benefit of youth – DOLE

3.1 Improving access to decent employment

The government (DOLE) has further strengthened policies to improve young people access to decent jobs. These accomplishments included: 14. The government (through DOLE) implemented the

new 30-day mandatory conciliation-mediation mechanism for labor complaints (known as Single Entry Approach, or SEnA) with the aim of resolving employment disputes within 30 days since referral to SEnA. As of 2015, 108,234 cases were resolved.

The government (DOLE) continued to strengthened policies to improve young people access to decent jobs and income security. 15. The government continued implementing

SEnA with the aim of increasing share of disputes resolved through SEnA.

Majority of employment disputes resolved through SEnA within 30 days of referral to SEnA.

ADB = Asian Development Bank, BPO = business process outsourcing, CHED = Commission on Higher Education, DOLE = Department of Labor and Employment, DOT = Department of Tourism, GAA = General Appropriations Act, GDP = gross domestic product, ITBPAP = Information Technology and Business Process Association of the Philippines, Government Internship Program = GIP, IT-BPM = information technology-business processing management, JSP = JobStart Philippines, LGU = local government unit, LMIS = labor market information system, MoU = Memorandum of Understanding, NEET = not in employment, education, or training, PEIS = PESO Information System, PESO = public employment service office, PQF = Philippine Qualifications Framework, Republic Act = RA, SEnA = Single Entry Approach, SPES = Special Program for Employment of Students, tbd = to be determined, TESDA = Technical Education and Skills Development Authority, Technical and Vocational Education and Training = TVET. Source: Asian Development Bank.