LGUs ramp up borrowings for infra, COVID-19 response | Inquirer Business

LGUs ramp up borrowings for infra, COVID-19 response

/ 05:26 AM November 12, 2021

Local government units’ (LGUs) borrowings from January to October already exceeded last year’s total as they took advantage of low interest rates to finance mostly infrastructure projects.

The latest data of the Department of Finance’s Bureau of Local Government Finance (DOF-BLGF) on Thursday showed that 20 provinces, 40 cities, 261 municipalities and nine barangays sought to borrow a combined P82.6 billion as of end-October, exceeding the P81-billion loan requirement of LGUs for the entire 2020.Earlier BLGF data showed that as early as end-September, the 308 certificates of net debt service ceiling and borrowing capacity that the agency issued to the same number of LGUs already surpassed the total of 271 last year.

LGUs need to secure these certificates from the BLGF before they can borrow from government financial institutions (GFIs) to prove their ability to repay borrowings.


In October, the additional certificates issued brought the 10-month total to 330.


These 330 LGUs had a combined borrowing capacity amounting to P223.4 billion or 1.7 times bigger than what they wanted to borrow.

From January to October, municipalities borrowed the most, with P39 billion worth, followed by cities (P31.4 billion), provinces (P12.2 billion), and barangays (P56.6 million).


Last month, BLGF executive director Niño Raymond Alvina told the Inquirer that LGUs have been “taking advantage of the low interest rates, and the interest subsidy programs of GFIs granted under the Bayanihan 2 Law.”

Alvina said the bulk of LGUs borrowings so far this year were intended for capital expenditure projects, such as infrastructure and acquisition of heavy equipment.

A handful of LGUs also borrowed to finance their COVID-19 response programs, specifically to build monitoring and treatment facilities as well as buy medical equipment, Alvina said.

Last year, 18 LGUs injected the proceeds from their borrowings into pandemic response.

Finance Secretary Carlos Dominguez III had been urging LGUs to “make the best use of their borrowing capacity to bolster recovery programs” from the health and socioeconomic crises inflicted by COVID-19.

The GFIs Development Bank of the Philippines (DBP) and Land Bank of the Philippines (Landbank) as well as the state-run Philippine Guarantee Corp. (PhilGuarantee) have made available financing facilities to keep LGUs afloat amid the prolonged pandemic.

Next year, LGUs will receive more than P959 billion in national tax allotment (NTA), formerly called internal revenue allotment (IRA).

To recall, the Supreme Court granted in 2018 and reaffirmed a year later the petitions of Batangas Gov. Hermilando Mandanas and former Bataan Gov. Enrique Garcia Jr., which stated that the LGUs’ IRA should come from 40 percent of the collection of all national taxes — the Bureau of Internal Revenue’s (BIR) tax take, as well as the Bureau of Customs’ (BOC) collections of import duties and other taxes.

Up to this year, LGUs’ IRA represented two-fifths of national internal revenue taxes collected by the BIR.

The NTA, meanwhile, was based on LGUs’ 40-percent share from all tax revenues collected three years prior, hence next year’s allotment had 2019 as base year.

LGUs’ 2022 NTA jumped from an estimated IRA of only P846.31 billion for next year without the so-called Mandanas ruling. This year, LGUs’ IRA amounted to P695.49 billion.

Next year’s implementation of the Supreme Court’s 2018 decision on the Mandanas-Garcia petitions reduced the government’s fiscal space, such that President Duterte issued Executive Order (EO) No. 138 in June to transfer to LGUs the responsibility to spend on local infrastructure, agriculture, social welfare, health care, and livelihood, among other sectors included in the Local Government Code.

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While the Supreme Court’s Mandanas ruling will provide LGUs with more money, they were expected to struggle spending their larger budgets to implement big-ticket programs and projects devolved by the national government through EO 138. For instance, the World Bank had estimated that LGUs may fail to spend as much as P155 billion from their NTA next year.

Ben O. de Vera
TAGS: infrastructure projects, local government units (LGUs), low interest rates

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