At the House of Representatives’ deliberations on the proposed budget of the Department of Public Works and Highways (DPWH) last Aug. 30, legislators questioned Secretary Manuel Bonoan on why record flooding continues to be a problem despite P1.2 trillion having been spent by the department on flood control projects since 2009. Pinpointed were the Pasig Marikina River Channel Improvement Project and the Metro Manila Flood Management Project Phase 1, both foreign-funded, which have been characterized by “negative slippages, low fund use, and major delays.” Bonoan’s quick response was to cite the absence of counterpart funding due to the zero allocation for DPWH’s foreign-assisted projects in 2024.

President Marcos Jr., in his 3^rd State of the Nation Address last July 22, boasted of the ₱1.2 trillion spent for 5,500 completed flood control projects. Two days later, Marcos’ words would ring hollow when Typhoon “Carina” (internationally “Gaemi”), aggravated by the southwest monsoon, unleashed torrential rains on Metro Manila, generated widespread flooding and destruction, trapped thousands, and caused 21 deaths. On Sept. 1, heavy flooding caused by Tropical Storm “Enteng” (internationally “Yagi” but not a typhoon) resulted in 24 deaths from intense flooding and landslides and the suspension of work and classes for three days in Metro Manila. 

About 20 storms regularly afflict the Philippines each year. 

Among all national agencies the DPWH has the biggest budget allocations, amounting to ₱718.13 billion in 2023, ₱822.2 billion in 2024, and ₱900 billion proposed for 2025. Flood control counterpart funds comprised 39% (₱281 billion) in 2023, 31% (₱255 billion) in 2024, and 22% (₱200 billion) for the 2025 proposal. 

Foreign loans and grants carry the requirement of counterpart funding from the recipient government. Data from the Department of Budget and Management (DBM) show that of 92 existing loans and grants amounting to ₱48 billion from major donors like the Asian Development Bank, World Bank, Japan International Cooperation Agency, Korea, and China, the Philippine government had to generate ₱37 billion in counterpart funding. This comprised 44% of total project costs of ₱84.6 billion. 

The DPWH has six ongoing flood control projects in Metro Manila funded by foreign loans. These are the Pasig-Marikina River Channel Improvement Project Phases 3 and 4, the Integrated Flood Resilience and Adaptation Project 1, the Metro Manila Flood Management Project Phase 1, the Floodways Construction Project (Pasig-Marikina River and Manggahan Floodway), and the renewed Pasig Marikina River Channel Improvement Phase 4. 

The DBM data show that counterpart funds comprise a major cost of foreign-assisted projects and constitute a heavy fiscal burden on the Philippine government. In the case of the six Metro Manila flood control projects with project implementation schedules from 2014 to 2029, counterpart funds comprise 38.49% (₱53.7 billion) of total project costs of ₱139.5 billion. 

The problem with counterpart funds

Counterpart local funds can be both monetary or non-monetary although it is the former that is typically reported and calculated in relation to fund disbursements. The Philippine Official Development Assistance Act of 1996 provides in Section 5 that “the counterpart funds necessary to implement each ODA project must be included in the Annual Expenditure Program submitted by the President to Congress …” 

The stipulation of counterpart funds can be rationalized in terms of project sustainability via recipient country commitment, recipient ownership, building local capacity and expertise in project management and implementation, debt service reduction, and mitigating the risk of project failure.

Issues and problems 

There are, however, issues and problems that arise with counterpart funds that appear to cancel out their presumed benefits. These are: the fiscal constraints that developing countries suffer from in terms of limited resources and competing priorities for essential needs such as health, education, housing and other social services; the relatively large allocations for counterpart funds that could result in project delays and cost overruns with respect to procurement and dealing with the bureaucratic requirements in obtaining approval and disbursement for the funds; and the perennial hazards of corruption, inefficiency and anomalies where counterpart funds can be misappropriated, misspent, and ineffectively utilized due to rent-seeking practices, bureaucratic red tape, lack of capacity, or political interference.

There are other issues. Counterpart funds, as part of the aid package, create an unhealthy dependence on foreign aid where donors may impose conditionalities that could hamper the recipient country’s own priorities and plans, fiscal autonomy and self-sufficient and sustainable development goals. And equity and social justice could be at risk where disparities in regional allocation could take place, favoring already developed regions or excluding marginalized and indigenous communities from project benefits.

Judging from the congressional hearings and media and government reports, it would appear that these issues apply with respect to counterpart funding of foreign-assisted flood control projects. Counterpart funds eat up a huge 38% of total project costs for Metro Manila projects alone that could hamper project implementation. The “negative slippages, low fund use, and major delays” and unmitigated flooding can be attributed to highly bureaucratic government processes as well as corruption and inefficiency. The fund utilization of 4 of the 6 Metro Manila projects ranged from 0%, 2%, 10% and 45%, with only one fully disbursing project funds. 

The fact that the DPWH commands the biggest block of funding among national government agencies with flood control counterpart funds cornering from 22% to 39% limits funding for social services and other economic priorities. Disparities between regions are also evident. Of the 13 flood control projects for the whole country between 2023 and 2025, 54% of funds went for Metro Manila projects alone despite the region having only 12% of the country’s population.

‘Hidden’ costs

Counterpart funds are but some of the “hidden costs” of the government’s foreign borrowings that are not openly disclosed when the government reports on the status of public debts. When debt service data are announced, only interest payments are reported, thus deceptively minimizing the actual costs of debt servicing. Aside from counterpart funds, there are add-ons imposed by foreign funders, such as commitment fees, front-end fees, service or management charges, prepayment charges, and tied aid. For recipient governments, there are cost overruns, right of way and land acquisition and relocation costs, and sovereign guarantees for private loans. 

Foreign funding and the debts that they generate—euphemistically called “official development assistance”—need a major and radical rethinking. Eventually, as I argued in an earlier commentary, “debts must be evaluated on whether they ultimately benefit the poor and marginalized populations and the less developed regions of the country.”

Following that principle, foreign debts accrued for flood control projects fail colossally to benefit the country and the general population particularly the poor and marginalized who, time and again, are forced to bear the burden of fiasco projects while billions of pesos in public funds are wasted or misappropriated. 

Eduardo C. Tadem, PhD, is emeritus professor of Asian Studies, University of the Philippines, and convenor, Program on Alternative Development, UP Center for Integrative and Development Studies. Part of the analysis on the pros and cons of counterpart funds was AI-generated.

Read more: Quad committee’s upcoming hearings will be a ‘blockbuster’