MANILA, Philippines—The foreign donor community has backed the government’s efforts to expand its direct cash subsidies for the poor while phasing out “less efficient programs” such as rice subsidies.

In a special Philippine Development Forum organized to help the country hurdle an environment of high fuel and food prices, multilateral and bilateral donors led by the World Bank also debated on the merits of subsidies for agricultural inputs such as fertilizers and seeds. They noted that these could best be used as a transition measure to cushion the impact of policy reforms on poor farmers.

“Participants argued that with the implementation of a modern social protection system, the need for rice price stabilization and rice distribution will diminish over time,” the World Bank said in a statement on behalf of the donor community.

Development partners also offered assistance to implement critical reforms, including rationalization of the functions of the National Food Authority (NFA) and trade policy and irrigation issues.

The NFA is the government agency acting as a buyer of last resort, importing rice, managing stocks and stabilizing prices, and regulating rice trading. The government generally reimburses the NFA for the full amount of the import duty through a tax subsidy. This enables the NFA to sell rice at a cheaper price than private firms.

“Development partners highlighted the merits of expanding the conditional cash transfer program (CCT) and emphasized the importance of establishing a solid targeting system for the CCT, which could also be used to target other pro-poor programs,” the statement said.

This, it was noted, would in turn allow for the removal of some of the less efficient programs, including subsidized rice.

“The meeting acknowledged that the CCT has the potential to boost the Millennium Development Goals as well as directly fight poverty and inequality, noting that sustained investment in the program could alleviate future economic shocks to the poor,” the statement said.

Donors also debated a variety of policy options proposed for protecting the poor from the impact of higher food and fuel prices. There was broad consensus among participants that across-the-board measures such as a reduction in the value-added tax (VAT) rate, abolition of the VAT on oil or changing the VAT on oil to a specific tax, would not be the appropriate tool for the objective of supporting the poor since most of the benefit from reducing the VAT would benefit the better off.

“It was argued that such measures would even backfire as lower revenue effort could undo some of the gains that the Philippines has reaped from past fiscal and economic reforms,” the donors said.