Second Municipal Development
 Report No: ; Type: Report/Evaluation Memorandum ; Country: Philippines; Region: East Asia And Pacific; Sector: Urban Management; Major Sector:
                                                   Urban Development; ProjectID: P004573


        The Philippines Second Municipal Development Project, supported by Loan 3146-PH for US$ 40
million equivalent, was approved in FY90. The Loan was closed in FY97 as scheduled. The
Implementation Completion Report (ICR) was prepared by the East Asia and Pacific Regional Office. A
summary of the Borrower’s report is included in Appendix B.

              The project objectives were: (i) to assist local government units (LGUs) in Metro Manila and
the surrounding provinces to provide basic infrastructure services, especially to lower income
communities; (ii) to improve LGUs’ capacities for planning, financing, and implementing investments;
and (iii) to expand the coverage of the Municipal Development Fund (MDF) to include all LGUs in the
Philippines. These objectives were to be achieved through: (a) on-lending to LGUs for financing basic
infrastructure investments, public facilities such as public markets and slaughterhouses, and maintenance
equipment; (b) local resource mobilization through the Real Property Tax Administration (RPTA)
programs for tax collection efficiency; and (c) technical assistance to the main national implementing
agencies such as Department of Public Works and Highways (DPWH) and Department of finance (DOF).

              The project achieved most of its objectives. The physical and institutional objectives were
successfully achieved, but the third objective of expanding the coverage of MDF to all LGUs in the
country turned out to be too ambitious. Thirty five LGUs, including many low income communities, took
out loans to finance various sub-projects. The majority of the sub-projects were revenue-generating
facilities such as public markets (30 LGUs) and slaughterhouses (4 LGUs). Other sub-projects included
roads, drainage, and maintenance equipment. The public market sub-projects improved the markets’
sanitary facilities, and significantly contributed to the revenue of the LGUs. Eighty seven LGUs
participated in the RPTA program. Their tax base increased by 30.4 percent and the total assessed
property value increased by 2.4 times. The Central Project Office of the DPWH established itself as a
capable project implementation agency and acted as a technical intermediary to assist LGUs in sub-
project preparation and implementation. The MDF successfully performed as an intermediary to provide
LGUs with direct access to long-term investment finance. Institutional development impact on LGUs was
also substantial. The LGUs had hands-on experiences of investment planning, procurement, contract
supervision, and operations of basic municipal services. The Economic Rate of Return for selected sub-
projects at completion ranged from 13 to 29 percent , higher than the appraisal estimates of 13 to 21
percent.

             OED rates project outcome as satisfactory, institutional development as substantial,
sustainability as likely, and Bank performance as satisfactory. The above ratings are consistent with those
indicated in the ICR, and were confirmed by the Performance Audit Report issued in June 1997 on a
cluster of projects including this one.

            The main lesson is that the size and complexity of sub-projects should be compatible with the
technical capacity and financial resources of institutional borrowers, in this case LGUs. The participating
LGUs started with simple revenue-generating projects which presented minimum risks for cost recovery
and prepared themselves for more complex projects to be financed in the future.

              The ICR is rated as satisfactory.

              The project was audited (see above).