Manila-based Asian Development Bank Tuesday approved a $250-million (about P12.4 billion) loan aimed at raising local government units’ (LGUs) revenues to better provide public services to communities in the Philippines.
In a statement, the ADB said the policy-based loan which was given the go-ahead by its board of directors would serve as the second phase of the Local Government Finance and Fiscal Decentralization Reform Program currently being implemented by the departments of the Interior and Local Government, Budget and Management, as well as the Finance department’s Bureau of Local Government Finance.
According to the ADB, the loan will assist LGUs to “deliver better and more effective public service through improved revenue generation, stronger public financial systems and regulatory frameworks, and increased transparency and accountability.”
“Service delivery, especially in the rural areas, has lagged those of the more developed areas as rural LGUs do not have sufficient revenues,” ADB principal financial sector specialist Stephen Schuster noted.
LGU initiatives
“Therefore, the government has prioritized a number of initiatives to assist LGUs, including distributing national resources more equitably, and increasing their capacity to raise own-source revenues to improve the delivery of health, education, housing and other services to communities,” Schuster said.
The ADB noted that under the Local Government Code, LGUs bear much of the work in terms of service delivery, such that local governments in 2014 accounted for over a fourth of total public expenditures.
“While the internal revenue allotment provides intergovernmental fiscal transfers to compensate, it is based on a formulaic approach that does not consider either the fiscal needs of the LGU or the ability of the LGU to fund necessary service delivery,” the ADB noted.
Also, “over-reliance on the internal revenue allotment dilutes the accountability between LGUs and their constituents that is provided by an efficient tax system,” it added.
As such, the ADB said its loan would allow the program to “[support] the government’s decentralization and public financial management reform agenda by addressing these constraints and helping LGUs widen their own-source revenue base while making it sustainable.”
“It also helps LGUs enhance tax collection efficiency, access debt capital markets, strengthen public financial management systems, and create a more equitable fiscal framework geared towards the achievement of inclusive growth. Decentralization also improves governance and service delivery, with LGUs becoming more accountable to their constituencies,” according to the ADB.