Philippines: First Digital Transformation Development Policy Financing

approved

The Program proposes to provide the GoP a development policy financing (DPF) under the COVID-19 Crisis Recovery Facility of the Bank (CRF) and will be co-financed with the World Bank (WB). The COVID-19 pandemic has interrupted the Government's developmental wave and has left long-term impacts. Aside from the economic contraction, the pandemic also resulted in significant social sector losses which mostly affected the poorest and most vulnerable. For the country to achieve economic recovery that is resilient, and inclusive, there is a need to focus on new development drivers including digitalization. Digitalization has a large potential to increase productivity by reducing firms' operational costs and allowing them to reap economies of scale. First, digitalization can increase the efficiency and transparency of government services and empower its constituents, especially those previously distant from the center of decision-making. Digital platforms and services offer great potential for helping build resilience and preparedness against future crises and for mitigating and adapting to climate change (World Bank Development Committee paper, 2022). Second, digital finance is a key enabler of financial inclusion and women's empowerment. Third, aggregate productivity can be raised by facilitating new and emerging firms to enter markets through disruptive innovations. Finally, digitalization expands firms' market access as it decreases information constraints and transaction costs, which are particularly binding for micro, small, and medium enterprises (MSMEs). Higher operational efficiency and access to wider and more diversified markets, in turn, render firms more resilient against shocks. The DPF builds on the nation's long-term vision articulated in “AmBisyon Natin 2040”, and the recently launched Philippine Development Plan 2023-2028 to achieve inclusive growth. It is structured along the following three thematic pillars: - Pillar A: Improve digital government service delivery, and pro-competition infrastructure policies. - Pillar B: Expand financial inclusion for individuals and businesses through digital finance. - Pillar C: Boost business growth in digital services.