Designing a Comprehensive Public Financial Management Reform Plan for the Philippines

The Philippines has the world’s highest overall risk of experiencing disaster and extreme natural hazard events and still struggles with limited availability and poor targeting of funds for disaster risk prevention, mitigation, preparedness, response, rehabilitation and recovery.^[1] Economic damages to the Philippines from future climate change hazards are estimated to reach up to 7.6% of GDP by 2030 and 13.6% of GDP by 2040.^[2] Despite strong policy direction and support by successive government administrations, implementation continues to face several challenges because of the lack of coherence across the governance structure for climate action.

In 2023, the country’s SDG Index was 67.1, close to the regional average of 67.2. With 68.9% of its SDGs off-track, of which 29.7% are worsening (Sustainable Development Report 2023), the strength of its institutions (SDG 16), among others, is still a major challenge.

The Philippine Development Plan (PDP) 2023–2028 recognized the necessity of good governance, bureaucratic efficiency, macroeconomic stability, acceleration of climate action, and strengthening of disaster resilience in the country’s overall socio-economic development. In 2023, the government issued an executive order to strengthen its public financial management (PFM) system through reforms and requested the Asian Development Bank (ADB) to provide funding and technical assistance as its lead development partner for PFM reforms.

PFM in the Philippines has seen continuous progression in response to development challenges that the country faced. Early reforms since the restoration of democracy in 1986, which continue to have significant influence over PFM policy today, include the medium-term expenditure framework (budget strategy), organizational performance indicator framework (performance budgeting), government procurement reform act, and reforms to strengthen transparency and participation such as the Transparency Seal.^[3]

The government made major efforts for PFM reforms since 2010, including the establishment of the PFM Committee, development of prior two PFM reforms roadmaps covering 2011–2016, implementation of budget reform program and, most recently, development of the PFM Reforms Roadmap 2024–2028 to expedite the adoption of an Integrated Financial Management Information System.

However, the past PFM reforms of the Philippines have been fragmented. Only four of the 11 strategic goals were implemented in the prior two PFM reform roadmaps covering 2011–2016. The challenges included a siloed approach in the design and implementation of interventions, resulting in continued dependency on manual procedures, excessive administrative burden, and gaps in the overall budget and project cycle.

For the Philippines to become an upper middle-income country and to achieve the SDGs, there is a need for a robust, accelerated, comprehensive, inclusive, resilient, responsive, and digital PFM transformation to serve as the cornerstone and foundation of people-centered, clean, and efficient government as recognized in its 25–year long-term vision in AmBisyon Natin 2040 and PDP 2023–2028.

ADB recognizes the crucial role of governance and institutional capacity as the foundation for sustainable development, and the need for countries to have a robust PFM that allows relevant, effective, efficient, economical and ethical public resource utilization.

To help the government strengthen its PFM systems through responsive and effective reforms, ADB is funding a three-phased approach to develop an Inclusive PFM Reform that consists of the following: (1) stocktaking of past reforms and consultative PFM roadmap development process; (2) multistakeholder and multi-framework PEFA assessment with identification of pending gaps against international practices and standards; and (3) midterm review of the PFM reform roadmap and development of its detailed action plan. (See Figure 1.)

Figure 1. The Three-Phased Approach to Develop an Inclusive PFM Reform

Source and Illustration: Developed by Maria João P. Kaizeler and Eriko Tominaga (Public Financial Management Division, Procurement, Portfolio, and Financial Management Department, ADB).

Phase 1: Stocktaking of past reforms and consultative PFM Reforms Roadmap 2024–2028 development process

The PFM Reform Roadmap 2024–2028 was developed with a stocktaking of past and ongoing PFM reform initiatives and lessons learned, and survey of reform objectives on key PFM areas. The government conducted a self-assessment based on the technical expertise, oversight, policymaking, and regional perspective of over 1,100 PFM practitioners, including senior government officials and PFM practitioners from the national, subnational, and autonomous agencies, and de-concentrated entities (Image 1). The Philippines President and the key PFM stakeholders appreciated and supported the strategic reform planning process (Images 2 and 3).

The Philippines PFM Reforms Workshops Series was held last 11–14 March and 15–16, 19, 26, and 30 April 2024 at the ADB Headquarters in Manila and in the regions of the Philippines. Photo credit: ADB.

On 10 June 2024, ADB presented the PFM Reforms Roadmap 2024–2028 to the PFM Committee—Principals of the Department of Budget Management, Department of Finance, Commission on Audit, and the Bureau of the Treasury—for approval and endorsement to the Philippines President. Photo credit: ADB.

On 17 September 2024, Philippines President Ferdinand R. Marcos, Jr. (leftmost) accepted in Malacañan Palace the endorsement of the PFM Reforms Roadmap 2024–2028 by the Principals of the PFM Committee and Resource Agencies, DBM Secretary Amenah F. Pangandaman, COA Chairperson Gamaliel A. Cordoba, Department of Information and Communications Technology Secretary Ivan John Uy, and National Economic Development Authority Secretary Arsenio M. Balisacan. Photo credit: ADB.

Phase 2: Multistakeholder PEFA assessment and identification of pending gaps against international practices and standards

The government endorsed the conduct of the 2024 Public Expenditure and Financial Accountability (PEFA) assessment, with additional assessments for climate, gender, and disaster resilience for the national government (PEFA++ with Disaster Resilient and Responsive–PFM), with ADB as the lead development partner.

The Philippines government engaged development partners—such as ADB, the French Development Agency, the Global Fund, the International Fund for Agricultural Development, the United Nations Development Programme, and the World Bank—through coordination meetings to lay out the PFM Reform Roadmap 2024–2028, PEFA++ with DRR–PFM Assessment, and Midterm Review agenda. The coordination meeting enabled the government to harmonize stakeholders’ support and the DPs to discharge their fiduciary commitment ensuring more effective development intervention.

The 2024 PEFA++ with DRR–PFM Assessment will provide insights using the international standards and best practices. It is a multi-framework assessment utilizing the PEFA 2016 Framework, PEFA Gender, PEFA Climate, and DRR–PFM Assessment Tool, developed by the World Bank. The involvement of most DPs with presence in the country will help ensure streamlined, relevant, and effective support for PFM reform initiatives.

Phase 3: Review and preparation of detailed roadmap action plan

Finally, the results of the 2024 PEFA++ with DRR–PFM Assessment will inform the midterm review of the PFM Reforms Roadmap 2024–2028 in 2025 and development of the detailed action plan. The midterm review will synthesize local self-assessment with international standards and best practices and support the design of a detailed and effective action plan for a robust, resilient, and efficient PFM system in the Philippines.

Without a multistakeholder engagement, past PFM reforms were less effective.

There is strong recognition of needed reforms, appetite for digitization, and willingness to strengthen systems among senior officials of different government ministries. However, siloed ministry-level and ministry-initiated reforms and digitization efforts resulted in duplicate and incompatible information systems, heavy manual reconciliations, and multiple reports submission. These drastically increased the operational requirements and workload of PFM practitioners. Moreover, the stocktaking of prior reform plans showed that initiatives requiring multi-ministry coordination have a lower rate of success.

On the other hand, development partners have different and overlapping areas of concern where support and resources are individually and separately committed. Inadequate coordination among DPs led to redundant investments becoming burdensome to the government lowering development impact.

Empathizing with and involving PFM practitioners from all levels of government ensures inclusive, responsive, and sustainable PFM reforms.

During the subnational workshops, there was a common perception that policies and projects were primarily designed and implemented by the central government, leading to frustration over the exclusion of local contexts and priorities. This sense of exclusion and lack of national-subnational alignment resulted in minimal buy-in and weak implementation of national policies and projects at the subnational and local levels. PFM reform is a design thinking process, which must involve empathizing, identifying pain points, and developing tailored value propositions for the "customers" of the "product," namely, the PFM practitioners, policy- and decision-makers, and citizens affected.

During the workshops, senior officials empathized with the struggles and aspirations of PFM practitioners, even incorporating the social, emotional, and functional dimensions of their work. A comprehensive and inclusive process of developing the PFM Roadmap is key to strong ownership and commitment to the reform objectives and interventions by all stakeholders. The process should build trust among different ministries and between senior officials (who institute the policies) and PFM practitioners (who implement the policies).

PFM reforms must be country-led, and international standards and best-practices must be tailor-fitted.

The relevance and effectiveness of reform initiatives vary based on the economic, technical, political, social, and geographic contexts. For the Philippines, the three-phased approach enables a self-assessment with local perspective and integration of international standards and best practices, and allows for the iterative adoption and contextualization of interventions. This strategy will allow the DPs to deepen their understanding of the local context and the felt needs of the government, enabling them to provide development interventions that are relevant, effective, and sustainable.

To conclude, while the SDGs are global, the means and methods of achieving them are inherently local. The foundational nature of PFM in sustainable development requires strengthening efforts to be handcrafted, developed and owned by PFM practitioners (inclusive), and tailored to local context.

^[1] Bündnis Entwicklung Hilft (BEH) and Ruhr Universitat Bochum (RUB)–Institute for International Law of Peace and Armed Conflict at the Ruhr University Bochum (IFHV). 2023. World Risk Report 2023.
A. Brucal et al. 2020. Disaster Impacts and Financing: Local Insights from the Philippines. Grantham Research Institute on Climate Change and the Environment and Centre for Climate Change Economics and Policy and London School of Economics and Political Science.

^[2] World Bank Group. 2023. Philippines Country Climate and Development Report.

^[3] The Transparency Seal in the official Philippine government websites is a mandatory webpage to be maintained by all government agencies where operational and financial information are required to be disclosed for public access.

Asian Development Bank. Regional: Strengthening Project Readiness, Procurement, and Financial Management in Southeast Asia.

J. D. Sachs et al. 2023. Sustainable Development Report 2023: Implementing the SDG Stimulus. Dublin University Press.