The World Bank Philippines Civil Service Modernization Project (P180649) @#&OPS~Doctype~OPS^blank@pidaprcoverpage#doctemplate Project Information Document (PID) Appraisal Stage | Date Prepared/Updated: 27-Oct-2024 | Report No: PIDIA00672 The World Bank Philippines Civil Service Modernization Project (P180649) @#&OPS~Doctype~OPS^dynamics@pidaprbasicinformation#doctemplate BASIC INFORMATION A. Basic Project Data Project Beneficiary(ies) Region Operation ID Operation Name Philippines Civil Service Philippines EAST ASIA AND PACIFIC P180649 Modernization Project Financing Instrument Estimated Appraisal Date Estimated Approval Date Practice Area (Lead) Investment Project 29-Oct-2024 06-Nov-2024 Governance Financing (IPF) Borrower(s) Implementing Agency Republic of the Philippines Civil Service Commission Proposed Development Objective(s) To improve the efficiency and the quality of human resource and payroll management in selected national government agencies in the Philippines civil service. Components Component 1: Strengthening Individual and Agency Capabilities for HRM Component 2: Systems and Technologies for Effective HRM Component 3: Project Management and Change Management @#&OPS~Doctype~OPS^dynamics@pidprojectfinancing#doctemplate PROJECT FINANCING DATA (US$, Millions) Maximizing Finance for Development Is this an MFD-Enabling Project (MFD-EP)? No Is this project Private Capital Enabling (PCE)? No SUMMARY Total Operation Cost 69.55 Total Financing 69.55 of which IBRD/IDA 67.34 Financing Gap 0.00 DETAILS Page 1 The World Bank Philippines Civil Service Modernization Project (P180649) World Bank Group Financing International Bank for Reconstruction and Development (IBRD) 67.34 Non-World Bank Group Financing Counterpart Funding 2.21 Borrower/Recipient 2.21 @#&OPS~Doctype~OPS^dynamics@envsocriskdecision#doctemplate Environmental And Social Risk Classification Low Decision The review did authorize the team to appraise and negotiate Page 2 The World Bank Philippines Civil Service Modernization Project (P180649) B. Introduction and Context Country Context 1. Since the 1990s, the Philippines has made significant progress with a combination of structural reforms and institutional stability. The reforms initiated in the late 1980s and the 1990s played a key role in the country’s growth recovery and its acceleration two decades later. The growth recovery was driven by trade openness, gradual financial sector opening and deepening, and infrastructure development. The cumulative effect of past reforms coupled with prudent fiscal and macroeconomic policies resulted in an impressive acceleration of economic growth to an annual average of 6.4 percent in 2010-19. 2. Economic growth continued to strengthen alongside a post-pandemic recovery in private domestic demand, which has fueled services growth. The economy sustained its growth momentum, expanding by 5.7 percent year-on-year in the first quarter of 2024. Services remained the main growth engine, as robust domestic demand fueled the growth of wholesale and retail trade, financial activities, and business services. On the demand side, a robust labor market, steady remittance inflows, and credit growth underpinned household consumption. Investment spending also slowed because of uncertainties surrounding the global economic environment and high interest rates that slowed lending for production activities. The contribution of government consumption to the overall expansion in output was marginal due to ongoing fiscal consolidation. 3. The Government remains on track with its fiscal consolidation agenda. The fiscal deficit stood at 4.9 percent of Gross Domestic Product (GDP) in the first half of 2024, below the programmed target of 5.3 percent due to higher-than- expected public revenues. Public spending increased by 1 percentage point of GDP, primarily driven by interest payments and capital outlays. However, the rise in spending was largely offset by an increase in public revenues, which grew by 0.9 percentage points of GDP, mainly due to higher non-tax revenues from dividend remittances by government-owned and controlled corporations. The national government debt marginally declined to 60.9 percent of GDP in the first half of 2024, down from 61 percent in the first half of 2023, and is mostly domestic, peso-denominated, and long-term. 4. The growth outlook remains positive, averaging 6.0 percent in 2024-27, anchored on domestic demand. The medium-term outlook will be driven by robust private consumption activity, supported by declining inflation, a healthy labor market, and steady remittance inflows. Private investment will improve on the back of investment reforms in key sectors such as transportation, logistics, and telecommunication. Private domestic demand will be buoyed by the decline in real interest rates. Despite fiscal consolidation, the government is committed to its public investment program. The normalization in goods trade patterns will support export growth despite the moderation of global growth in 2024. The expected gradual global growth recovery will support external demand over the forecast horizon. The growth outlook still remains below the pre-pandemic potential growth of around 6.2 percent due to the scarring impact of COVID-19 on investments, human capital accumulation, and productivity. 5. The combination of fiscal consolidation and growth recovery will keep debt levels sustainable. The debt trajectory is expected to continue its decline over the forecast horizon to 58.9 percent of GDP by 2027, though still well above the pre-pandemic level. The reform to expand public-private partnerships (PPP) for infrastructure investment is not expected to increase risks to the fiscal position. Although the PPP pipeline is expected to expand over the medium term, potential contingent liabilities are expected to remain manageable, estimated at 1-1.3 percent of GDP under low and high case scenarios. The contingency allocation in the budget is adequate, staying at 3.7 percent of GDP in 2023. The debt dynamics will remain resilient against shocks. In the worst-case scenario of combined macro-fiscal shock, the debt ratio could peak at 66.6 percent of GDP in 2026. Page 3 The World Bank Philippines Civil Service Modernization Project (P180649) Sectoral and Institutional Context 6. Despite the good pre-COVID-19 economic performance, the Government of the Philippines (GoP) continued to face challenges in terms of the bureaucracy’s ability to effectively perform its functions. These were reinforced by pandemic-related disruptions to business continuity and slow, manual business processes that exposed serious underlying weaknesses in the bureaucracy. 7. The recent experience of the COVID pandemic has strengthened the rationale and motivation for a stronger performing bureaucracy. During the pandemic, and in a fast-moving environment of isolation, social distancing and remote work, Filipino civil servants needed to coordinate across departments, levels of government and private and social sectors. Operating during the pandemic exposed gaps and magnified several issues surrounding operational efficiency. These gaps include slow progress made in adopting suitable technologies, migrating to integrated information and communications technology (ICT) solutions, as well as reliance on outdated processes and procedures affecting the smooth running of the essential government operations, such as payroll and treasury transactions, as well as service delivery to citizens. The civil service was forced to adapt and implement alternative working arrangements to protect employees while still attempting to maintain the expected levels of output, productivity and efficiency. 8. Besides the challenges of the pandemic, the geographic location also exposes the Philippines to a wider range of natural disasters expected to be exacerbated by climate change. For instance, the Country Climate and Development Report 2022 (CCDR) for the Philippines notes that occurrence and frequency of climate related natural disasters tends to increase. The Philippines has topped the disaster risk ranking by the World Risk Report since 2011. The extreme weather events are ranked as the country’s number one national risk according to World Economic Forum’s 2023 Executive Opinion Survey. These may periodically affect the administrative records and archives of the public agencies, hinder the traditional communication and decision-making, thus disrupting the government operation and public service delivery. 9. The Government’s long-term plan AmBisyon Natin 2040 and the Philippines Development Plan, 2023-28 (PDP23- 28) recognize the important role of improved governance and the civil service in particular, in achieving the national vision and goals. The multiple challenges facing the Philippine civil service, in particular related to inefficient human resource management (HRM) processes, lack of strategic and evidence based approach, attracting and retaining talent, and performance management, have been well-documented and consistently highlighted in studies carried out by the World Bank over the past two decades.1 The onset of the COVID-19 pandemic and the crisis it triggered brought some of the shortcomings of the civil service to the surface, including the over-reliance on paper-based, manual systems, non- acceptance of electronic signatures resulting in the need for in-person attendance, lack of remote access to government systems and difficulties in carrying out routine but fundamental tasks such as the processing and execution of the payroll. 10. Human resource management capacity at agency level is relatively low throughout the civil service while the overall competency level of human resource practitioners in government agencies was found to be below basic. Civil Service Commission (CSC) Human Resource Policy and Standards Office’s (HRPSO) review as of November 2023 concluded that 80.75% of all agencies are still at the lowest maturity level of ‘transactional’ HRM (disconnected from organization’s business and talent needs). Human resource management officers (HRMOs) are predominantly focused on performing routine human resource (HR) transactions. In the absence of a dedicated career path for HRMOs, the officials performing HR functions typically fall under general administration with ‘Administrative Officer - Human Resources’ designation. 11. Personnel services accounted for around 28% of national government budget expenditure between 2020-2023. Yet the information systems at the agency level and across the bureaucracy need to be significantly strengthened to 1 See, for example, Philippines: Improving Government Performance: Discipline, Efficiency and Equity in Managing Public Resources. A Joint Document of The Government of the Philippines, the World Bank and the Asian Development Bank. (April 30, 2003); Umbrella Project Concept Note: Government Expenditure Rationalization Loan (GERL) and Associated Sector Expenditure Management Projects (SEMPs) (November 2005); Philippines: Assessment Report on Payroll System Integration with Budget and Treasury Management Systems. (April 2018); Strengthening Human Resources in the Philippines Bureaucracy: Developing a Modern, Fit-for-Purpose Civil Service to Support a “Middle-class� Society. December 2018. Page 4 The World Bank Philippines Civil Service Modernization Project (P180649) effectively support the HRM for 2.18 million plantilla positions (1.97 million of which filled) and over 0.83 million employees hired through job orders and service contracts as of 2023. There is no single, comprehensive Human Resources and Payroll Management Information System (HRPMIS) covering the whole Philippines civil service to enable the Government to obtain an overall and accurate picture of government manpower, employment and costs at any given time. While the Department of Budget and Management (DBM) maintains the establishment records of authorized positions for each department and agency - referred to as the Personnel Services Itemization and Plantilla of Personnel (PSIPOP)2 - the departments and agencies maintain their own employee records and personnel management systems, with the personal information of incumbents of all authorized positions. There are different systems for leave management, performance management and reporting. As the overwhelming majority still use manual systems, even simple processes can take a long time, causing delays in appointments, promotions, transfers and payment of separation benefits, including pensions. 12. The absence of a centralized HRPMIS also affects the management of the public sector payroll. An assessment of the integration of the payroll system with the Budget and Treasury Management System (BTMS) in 2018 found a highly fragmented system with no national standard for HRM and payroll. Each agency has its own payroll solution including a combination of automated and manual systems. There are substantial opportunity costs associated with the inefficiencies in existing operations and systems. For example, there are over 4,000 implementing units (IUs) receiving payroll-related budgets directly from DBM with no centralized personnel registry jointly used by all IUs, hence duplicate personnel registries are created by the IUs for HRM and Payroll modules which are manually updated (with no interface). All payroll details are in separate IU databases, and data consolidation is costly. The payroll systems are not linked, necessitating manual data transfer or double data entry to be able to calculate payroll details. Most of the agencies are operating server rooms and providing network access to their central and regional users by investing in their silo ICT infrastructure, without interfaces with other government systems. Maintenance of these fragmented and disconnected platforms is costly. The upshot of all this is that payroll controls are weak as each IU is responsible for its own salary calculations. Ex-post review of salary payment is weak and there is no monitoring system for payment system errors and manual interventions. 13. The best option for future payroll management functions would be to implement a centralized payroll as part of a comprehensive, government-wide HRPMIS. Apart from safeguarding against the potential for payroll-related fiscal risk, the potential savings of moving to a centralized payroll could be significant. The HRPMIS will be planned and implemented jointly by the CSC and DBM, be hosted on the centralized shared cloud/datacenter solutions under the Department of ICT’s (DICT) domain, and technically allow flexibility for assigning the administrative rights over particular modules of the system to CSC, DBM and other agencies in-line with potential changes in functions and responsibilities. Implementation of HRPMIS will be part of the Government’s broader digital transformation efforts and interoperable with other core government modules. 14. The Philippine civil service requires a reorientation of the HRM function from being heavily transactional to being more strategic. HRM is about ensuring that the policies and practices of people management in an organization are directed at achieving the organization’s mandate, strategic goals and objectives. The definition of strategic HRM is linking human resources with organizations’ strategic goals and objectives so as to improve business performance and develop an organizational culture that nurtures innovation, flexibility and competitive advantage.3 Inter alia, this would entail a greater reliance on technology to relieve HRMOs of tedious transaction processing and improve both the availability and quality of data on public sector human resources. The introduction of automation and the availability of tools combined with capacity building are aimed at better equipping HRMOs to make optimal use of these tools for data analytics and strategic reporting for decision-makers. 2 Plantilla is the word used in the Philippines to refer to the Establishment. 3 Bagga, T. and S. Srivastava, 2014. SHRM: alignment of HR function with business strategy. Strategic HR Review, Vol. 13, Issue 4/5. Page 5 The World Bank Philippines Civil Service Modernization Project (P180649) C. Proposed Development Objective(s) Development Objective(s) (From PAD) 15. To improve the efficiency and the quality of human resource and payroll management in selected national government agencies in the Philippines civil service. Key Results a) Efficiency will be measured through reduction in CSC's turnaround time on the appointment validation/attestation process, increase in the number of agencies using HRPMIS, and share of the staff in participating NGAs with payrolls processed through the integrated database of HRPMIS, b) Quality will be measured through net promoter score, average improvement in satisfaction ratings of identified key HR policies, and increase in agency level of employee engagement. D. Project Description Component 1. Strengthening Individual and Agency Capabilities for HRM 16. This component invests in strengthening strategic human resource management in the national government agencies and development of the CSC’s capacity to lead and coordinate the reform process. HRM in national government agencies (NGAs) is currently mostly transactional, and the project will support the implementation of a competency-based approach to recruitment, selection, learning and development, performance management, and rewards and recognition. The component will help the CSC develop HR data analytics capacity for workforce planning, career development and succession planning, and civil service wide training and development. While technology solutions assist in improving productivity and meeting the data needs enabling more strategic focus in HRM, the anticipated efficiency enhancements will require the CSC and NGAs capacity building in data analytics and strategic workforce planning, and re-orientation from simple transactions to more strategic role. This project component includes the following five (5) sub-components: 1.1 – Building Capacities of HRMOs supporting development of an HR certification system and business continuity plan, 1.2 – Enhancing Agency-Level HR Maturity focusing on building HR maturity at agency/organizational level through improved and strengthened HR systems and processes, 1.3 – Strengthening the CSC as a Reform Leader supporting the CSC in strengthening its internal HRM policies, conducting a functional review to underpin a program of internal reorganization for more streamlined, efficient and effective operation, and building data analytics capacity in the organization, 1.4 – Employee Engagement Survey supporting regular employee engagement surveys to measure staff experiences with HR practices which will also serve as a measure of the impact of the reforms, 1.5 – Content Development for E-Learning and Microlearning Modules for Knowledge Management combining both outsourcing and preparation of modules by the staff of the CSC and partner agencies. Component 2. Systems and Technologies for Effective Human Resource Management 17. This component will invest in establishment of an integrated, government-wide, web-based HRPMIS that will help improve efficiency and enable evidence-based human resource policymaking. Taking into account the Philippines Page 6 The World Bank Philippines Civil Service Modernization Project (P180649) bureaucracy context, the proposed HRPMIS will be a centralized and integrated database and system with delegated responsibilities to the respective NGAs for administrating payroll and HR actions for the staff in their agencies. CSC and DBM, as the central agencies responsible for whole-of-government HR policies and management and payroll, will have overall administrative rights over the systems for budget and HR control, analysis, and evidence-based policymaking. NGAs will continue exercising day-to-day management of the HR and payroll of their staff. The new system will enable budgeting by actual staff numbers instead of plantilla (establishment) positions, thereby improving cash management and generating fiscal savings; improve wage-bill and fiscal forecasting improve transparency; and controls; and increase efficiency and evidence base of the payroll management across the bureaucracy. The HRPMIS implementation will be preceded by a detailed functional review and business process reengineering (BPR). The BPR exercise, covering and learning from 39 early adopter agencies (accounting 57.5% of civil servants), will look to streamline and simplify existing HR policies, procedures and processes within and across the central agencies and the NGAs in order to ensure that the HRPMIS is based on efficient workflows and streamlined documentation requirements. Implementation of HRPMIS and associated digitization of records, cloud hosting, backup, and cybersecurity arrangements, will enhance government resiliency to climate related disasters, minimizing the risk for service interruptions, delays, and loss of information. This project component includes the following three (3) sub-components: 2.1 – Integrated Systems, Advanced Data Analytics and Business Intelligence financing the design, development and phased implementation of the HRPMIS, 2.2 – Improved and Resilient Infrastructure financing the hardware and network connectivity requirements for the HRPMIS, 2.3 – Robust Cyber Security Posture and Data Privacy Compliance supporting improved cybersecurity and data privacy posture of the CSC with the capability to withstand, respond to, and recover from cybersecurity threats and incidents while still maintaining its core functions. Component 3. Project Management and Change Management 18. This project component will provide the foundation for successful implementation. It includes the following two (2) sub-components: 3.1 – Project Management Unit financing an appropriately staffed and equipped project management unit (PMU) within the CSC, 3.2 – Change Management and Communications Strategies supporting proactive change management activities to onboard project stakeholders and communications strategy utilizing a variety of channels including face-to- face, websites, social media, etc. Contingency Allocation 19. The project also includes physical and price contingency allocations for addressing implementation and roll-out needs and unexpected procurement challenges. @#&OPS~Doctype~OPS^dynamics@pidaprlegalpolicy#doctemplate Page 7 The World Bank Philippines Civil Service Modernization Project (P180649) Legal Operational Policies Triggered? Projects on International Waterways OP 7.50 No Projects in Disputed Area OP 7.60 No Summary of Screening of Environmental and Social Risks and Impacts 20. The environmental risks and impacts of the Project is assessed to be low. The Project will not finance activities that will involve civil works nor prepare an infrastructure investment plan that will generate any potential environmental impacts. It will not involve project activities that will expose project beneficiaries or stakeholders to potential environmental risks and impacts. Post-use or end-of-life disposal of waste electronic equipment to be procured and installed as part of Component 2 activities could be an environmental concern. Although not expected during the project period, the potential impact from the improper disposal of e-waste will be mitigated by preparing an Environmental Codes of Practice (ECOP) and integrating it into the Project Operations Manual (POM) and the standard procurement documents of relevant project activities. E. Implementation Institutional and Implementation Arrangements 21. The CSC shall be the implementing agency for the project. In its capacity of the implementing agency, the CSC will have primary responsibility for project execution and ensuring that the project development objectives are met. Although the CSC will have primary responsibility for project execution, other collaborating agencies will contribute to the implementation of project activities. 22. The CSC will establish a PMU. The PMU will be responsible for ensuring timely preparation and execution of consolidated annual work plans and budgets; preparation, execution and updating of procurement and implementation plans; performance of fiduciary functions; and preparation of financial and performance reports, including monitoring and evaluation (M&E) and semi-annual progress reports. The PMU will also be responsible for overseeing the procurement of goods and services, processing disbursements of project funds, reviewing fund utilization and accountability, quality assurance of annual performance audits, overseeing review meetings, supervising project staff and consultancy assignments. 23. The project will be governed by a Project Steering Committee (PSC) co-chaired by CSC and DBM with DICT as a vice-chair. Its main role will be to provide strategic guidance to the CSC, the PMU and to government as a whole as it transitions to modern HR management systems. The Committee will also ensure that the project components and outputs are on track to achieve desired results and resolve policy issues that may hinder progress towards achieving these results. As the main implementing agency, the CSC will assign a Project Director to guide the project implementation, review and validate periodic implementation progress reports of the PMU, the final deliverables and reports. Reporting to the Project Director will be two inter-agency technical working groups (TWGs for PRIME-HRM and HRPMIS), one for each of the two substantive components of the project. The TWGs will be made up of Director-level officials and will review project implementation plans and strategies and monitor progress in the completion of planned outputs and targets. The first TWG will focus on Component 1 and will be chaired by the CSC. The second TWG for HRPMIS will focus on systems planned under the Component 2 and will be co-chaired by the CSC and DBM. @#&OPS~Doctype~OPS^dynamics@contactpoint#doctemplate Page 8 The World Bank Philippines Civil Service Modernization Project (P180649) CONTACT POINT World Bank Davit Melikyan Senior Public Sector Specialist Borrower/Client/Recipient Republic of the Philippines Joven Balbosa Undersecretary jbalbosa@dof.gov.ph Implementing Agencies Civil Service Commission Marilyn Barua-Yap Interim Chairperson och-yap@csc.gov.ph FOR MORE INFORMATION CONTACT The World Bank 1818 H Street, NW Washington, D.C. 20433 Telephone: (202) 473-1000 Web: http://www.worldbank.org/projects @#&OPS~Doctype~OPS^dynamics@approval#doctemplate APPROVAL Task Team Leader(s): Davit Melikyan Approved By Practice Manager/Manager: Alma Kanani 28-Aug-2024 Country Director: Zafer Mustafaoglu 27-Oct-2024 Page 9