DOF: LGU borrowing capacity still underutilized

MANILA, Philippines — Local government units should come up with capital investment plans following the devolution of national government functions, especially with the underutilization of their borrowing capacities.

According to Finance Secretary  Benjamin Diokno,  LGUs should  enhance and optimize their increased transfers in setting up plans on capital investments to address basic and growing needs of their people.

This, as the Mandanas Ruling raised internal revenue allotment transfers to LGUs and ordered that all national taxes should be included in computing the tax base in determining the allocation for LGUs.

This means that LGUs are now entitled to bigger funding that comes with additional responsibilities, as powers and programs coming from the central government will now be transferred to the local level.

“As we implement the devolution, LGUs are confronted with the challenge of funding the expanded scope of basic services and local development projects. It is imperative that LGUs put in place plans on capital investments,” Diokno said.

The Mandanas Ruling likewise strengthened the autonomy of LGUs, granting them the ability to borrow resources to improve local facilities and services.

Unfortunately, the DOF said LGUs have a low appetite for borrowing.

Data shows that only around 62 percent of LGUs have availed of credit over the past five years.

In 2021 alone, LGU borrowings only amounted to P136.6 billion or less than one percent of the country’s gross domestic product.

The DOF’s Bureau of Local Government Finance (BLGF) noted that LGUs were only able to utilize 51.5 percent of their borrowing capacity in the last five years.

These were most commonly used for the construction of local government buildings and roads, acquisition of lots, and procurement of heavy equipment.

To encourage local borrowing, the BLGF issued the certificate of net debt service ceiling and borrowing capacity to establish a maximum credit amount that LGUs can refer to.

The initiative is part of the government’s engagement with the World Bank, wherein LGUs will be given access to knowledge and tools to design creditworthy local strategies in planning and implementing capital investment projects.

“This initiative will steer our LGUs on the path to creditworthiness, which is key to accessing long-term financing required for sustainable investments,” Diokno said.