ADB extends $250-M loan for LGU review

MANILA, Philippines - The Asian Development Bank (ADB) has extended a $250-million loan to help the Philippines design ways to improve the financing system of local government units (LGUs).

The reform program will receive parallel co-financing of $150 million from the Agence Française de Developpement.

The loan will be used to fund a comprehensive review of the country’s Local Government Code “to boost municipal revenues streams for the provision of better basic services and to assist local economic development and job creation.”

ADB’s Southeast Asia Department senior public management specialist Juan Luis Gomez noted that the Philippines has taken significant steps to improve the financing system of LGUs and foster transparent and accountable local governance practices.

“Reforms should help raise revenues and therefore improve services,” Gomez added.

Despite these efforts, weak local tax bases and flaws in the design of transfers make it hard for poorer local governments to deliver the services their constituencies require. As a result, regional disparities in living standards remain wide.

This, however, could be efficiently addressed with a review of the Local Government Code.

LGUs represent close to 17 percent of total government expenditures and play a critical role in the provision of basic services like health, education, or housing and community development.

The reforms include performance-based mechanisms such as the Performance Challenge Fund, which ties greater access to funding to performance, and the “Bottom-up-Budget,” which can improve budget transparency and alignment of national and local development priorities.

Other reforms include continued implementation of accountability mechanisms, such as the Full Disclosure Policy or the Citizen’s Satisfaction Index.