LOCAL government units (LGUs) have been instructed to develop a capital investment planning capability, the Department of Finance (DoF) said, citing the need to raise their creditworthiness and improve their access to financing.
“As we implement the full devolution of certain functions from the executive branch to local governments pursuant to Executive Order (EO) No. 138, government units are confronted with the challenge of funding the expanded scope of basic services and local development projects. It is therefore imperative that LGUs put in place plans on capital investment,” Finance Secretary Benjamin E. Diokno said in a statement on Thursday.
EO No. 138 outlines the devolution of National Government functions corresponding to the expansion of LGUs’ share of national taxes.
The expansion of the LGUs’ National Tax Allotment comes as local officials made only limited use of their authority to borrow.
According to the DoF, only 62% of LGUs have availed of credit in the past five years.
In 2021, LGU borrowing only amounted to P136.6 billion or around 0.74% of gross domestic product.
The Bureau of Local Government Finance (BLGF) reported that LGUs were only able to utilize 51.5% of their borrowing capacity in the past five years.
“These were most commonly used for the construction of local government buildings and roads, acquisition of lots, and procurement of heavy equipment,” it added.
The BLGF issues certificates of net debt service ceiling and borrowing capacity to LGUs to set the maximum amount that LGUs can borrow.
Mr. Diokno said the initiative is being pursued as part of an engagement with the World Bank Group, in which LGUs will be capacitated to undertake the planning of their capital investment programs.
“This initiative will steer our LGUs on the path to creditworthiness, which is key to accessing long-term financing required for sustainable investments,” he added.
Ateneo de Manila University Economics Professor Leonardo A. Lanzona said that LGUs are key players in the economy’ recovery.
“For this to happen, they should be allowed to create and develop their own economic programs and policies. The national agencies and departments should refrain from setting rules and policies for the LGUs to follow. In this case, matters relating to industrialization, agricultural development and the enhancement of the service sector, including infrastructure, should be decided at the regional level,” he said in an e-mail.
Mr. Lanzona said that LGUs should develop their own industrial policy along the lines of service expansion, which should be presented to the National Government in order to reduce barriers that can mobilize both labor and capital to competitive regions.
“It is likely that some regions may lag behind. While the National Government should keep their hands off from the economic programs of the regions, it is crucial that they provide the necessary public goods, such as health, education and infrastructure to the lagging regions. This should be the only rationale for government intervention,” he added. — Luisa Maria Jacinta C. Jocson