Institutionalizing Zero-Based Budgeting/Program Evaluation in the Government The objective of the project is to help institutionalize the zero-based budgeting (ZBB)/program evaluation function of the government to improve budget preparation and to ensure that programs funded by the budget reflect the priorities of the government. Link to CAS Strategic Objective and/or ESW & Relationship to Bank Operations: The proposed project directly supports Outcome 2 of Strategic Objective No. 1 (improved efficiency and targeting of public expenditures).  This project will build on the previous IDF to DBM (Policy-Based Budgeting in a Medium-Term Framework).  The previous IDF closed in July 2011 but left a large agenda in the area of budget preparation for DBM to implement. Relationship to country/recipient's development program, including donor activities: The proposed project directly supports the expenditure policy reform program of the Aquino administration as detailed in the Philippine Development Plan 2011-2016.  In particular, the Plan calls for institutionalizing the zero-based budgeting (ZBB)/program evaluation approach to ensure that public money is spent on relevant and priority programs of the government. Brief Description of the Proposed IDF Components/Activities (including Expected Outcome for each Component) 1.  Capacity building for the new program evaluation unit in DBM. This component will implement the recommendations of program evaluation expert Manolo Castro who did the program evaluation assessment in January 2011 as part of the previous IDF grant to DBM.  Activities of this component include i) training on program evaluation for the staff of the new unit, ii) harmonization of ZBB concepts with NEDA and NSCB, and iii) development of a database and library for statistics and references to facilitate the program evaluation work and improve monitoring. Indicator: At the end of the project period, the program evaluation unit is established as a permanent office in DBM, has dedicated staff, and can produce ZBB/program evaluation studies independently. 2.  Pilot development of a program classification of the budget in at least three line agencies.  This component will clean-up/translate the current programs, activities, and projects (PAP) classification of the budget into a pure program classification of the budget to improve the identification of programs and to facilitate program monitoring and evaluation.  The end goal is to improve the results and monitoring framework of the government's budget. Indicator: At the end of the project period, the program classification of the budget is available for at least three line agencies and is used for program evaluation purposes. 3.  Conduct of additional ZBB/program evaluation studies to feed in the 2013 and 2014 budget. As part of the continued effort of the government to improve budget preparation, programs that have not yet been reviewed during the 2010 and 2011 rounds will be reviewed. There will be cost sharing between the IDF grant and government budget to ensure that there is gradual move to budgeted studies from externally-financed studies. For studies that are outsourced, a knowledge transfer to equip DBM staff with the tools and techniques of program evaluation will be a priority. The programs will be identified at the start of the budget cycle. Specific activities include: (a) Provision of technical assistance and capacity building to staff of DBM in conducting background policy analyses and supervising analytical work to be contracted out to independent consultants. (b) Provision of technical assistance and capacity building to staff of DBM in preparing background analyses for the paper on budget strategy. (c) Conduct of training workshops to transfer knowledge, tools, methodologies, and techniques from consultants to DBM staff. Indicator: Additional program evaluation studies to cover the remaining priority programs of the government with at least 50 percent of studies conducted in-house by the government at the end of the grant period. 4.  Preparation of multi-year sector spending plans: (a) Provision of technical assistance to staff in DBM and selected agencies, possibly the Dept. of Agriculture, Dept. of Transportation and Communication, and Commission on Higher Education, to prepare their multi-year sector spending plans. Indicator: Multi-year sector spending plan available in at least two more agencies every year.