LGUs urged to maximize borrowing capacity

lgus urged to maximize borrowing capacity - LGUs urged to maximize borrowing capacity

By Beatrice M. Laforga, Reporter

FINANCE SECRETARY Carlos G. Dominguez III said local government units (LGUs) should maximize their borrowing capacity to raise funds for programs that will help local economies bounce back from the coronavirus pandemic.

“I highly encourage the LGUs to make the best use of their borrowing capacity to bolster recovery programs. Under Bayanihan II, additional capital has been infused into our government banks to provide wholesale financing to rural banks and microfinance institutions so that they can expand lending to small enterprises,” Mr. Dominguez said in a speech during the webinar arranged by the Bureau of Local Government Finance (BLGF).

Republic Act 11494 or “Bayanihan to Recover as One Act (Bayanihan II) allots P1 billion each to the Land Bank of the Philippines (LANDBANK) and the Development Bank of the Philippines (DBP) to subsidize interest payments of new and existing loans obtained by LGUs. It also allocated another P6.5 billion to support DBP’s program on wholesale banking for low interest loans.

Mr. Dominguez said LGUs can also tap the Philippine Guarantee Corp. (Philguarantee) for credit, and the Municipal Development Fund Office (MDFO).

The Finance chief earlier flagged the low borrowing performance of LGUs that could have funded key projects.

The Development Budget Coordination Committee (DBCC) earlier estimated the majority of LGUs have more than 80% available borrowing capacity to date, while 653 out of 1,715 cities and municipalities do not have an outstanding balance as of 2019.

Tax collections by LGUs have been affected by weak demand due to lockdown restrictions and the economic slowdown. On the other hand, LGUs have been spending more to respond to the pandemic.

While the National Government has extended financial aid such as the one-time Bayanihan grant worth P37 billion for their emergency response, LGUs still need to implement programs that will aid in economic recovery.

“The LGUs are vital in the difficult task of rebuilding our economy. Closer to the ground, they are best positioned to help revive our enterprises hardest hit by the pandemic. They can help pump-prime the national economy through local public investments,” Mr. Dominguez said.

Politics may have been one factor that contributed to the low borrowing performance of LGUs, according to Union of Local Authorities of the Philippines (ULAP) National President Dakila Carlo E. Cua.

Mr. Cua, who is also the governor of Quirino province, said the accumulation of high loans ahead of an election can be used against a mayor or governor if the projects will not materialize.

“It (credit financing) becomes tricky kasi may halong politika (because of politics),” he said, rival politicians can raise issues over the loan amount and the use of the proceeds.

To avoid this, Mr. Cua said LGUs should ensure the proper implementation of a loan-funded project.

“Financing is really healthy as long as it is within your means, it is well-managed, and being a politician, make sure it is high-impact and it makes a difference,” he said.

Mr. Dominguez said the BLGF has already accelerated the process of issuing the certificates on net debt service ceiling and borrowing capacity to the LGUs through digital means so they can secure loans faster.

Meanwhile, Cecilia G. Soriano, a former Finance undersecretary, said LGUs that have been having a difficult time settling amortizations because of lower tax collections, can opt to refinance existing ones to take advantage of low interest rates and the interest rate subsidies.

“This is a good time to borrow and also a good time to refinance because of low interest rates and interest rate subsidy. Based on our computations, the bigger the difference of the interest rate they are paying now with the original loan and what is being offered by banks now with all these loosening up, maybe it’s a good time for LGUs to consider refinancing but only if the original loan is in the early stages, but if it has been paid up already, the benefits will not matter so much,” Ms. Soriano said in the same forum.

LANDBANK President and CEO Cecilia C. Borromeo said as of Sept. 30, the bank has extended P51.3 billion loans to 43 provinces, 83 cities and 513 municipalities.

The DBP also has several loan facilities that could offer long-term financing of up to 15 years for the LGUs.

The estimated revenues of LGUs for this year have been slashed to P193 billion from the pre-pandemic goal of P307.08 billion.

The total collections are expected to further decline next year to P102.01 billion coming from a weak base in 2020.

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