The Department of Finance (DOF) is urging chief executives of local government units (LGUs) to use their healthy borrowing position by availing of a largely untapped P300-billion credit financing window under the state-owned Land Bank of the Philippines (LandBank) to bankroll projects that would help the country recover from the coronavirus-induced global economic crisis.
Finance Secretary Carlos Dominguez 3rd said that barely a third of provinces, cities and municipalities have tapped into LandBank’s P300-billion facility that is available for their credit-financing needs.
Speaking at a recent virtual meeting of the Union of Local Authorities of the Philippines (ULAP), Dominguez disclosed that, based on the DOF’s Bureau of Local Government Finance (BLGF) data, only around 35 percent to 40 percent of LGUs in the country have availed themselves of loans despite very reasonable terms of 10 years at an interest rate of 4 percent to 4.5 percent.
“I want to point out that the actual borrowings of LGUs are far below their capacity. They have only borrowed less than half,” Dominguez told members of ULAP, an umbrella organization of all leagues of LGUs.
There is still around P170 billion to P180 billion loanable amount available for LGUs, he said.
“There is a lot of capacity, but there is no utilization of that capacity,” Dominguez added.
LGUs are considered low-risk borrowers because they can pay for their loans with their annual internal revenue allotment (IRA) allocations from the national government.
Also, the Supreme Court in April last year ruled with finality that LGUs should be given higher IRA allotment to include tax collections of other agencies apart from the Bureau of Internal Revenue (BIR). This will start in 2022.
CONCERNS FROM LOCAL GOVERNMENTS
During the same virtual ULAP meeting, also attended by LandBank President and Chief Executive Officer Cecilia Borromeo (CEO) and Development Bank of the Philippines President and CEO Emmanuel Herbosa, Marinduque Governor Presbitero Velasco Jr. raised concerns over the interest rate on the loan program for LGUs under the Bayanihan to Recover as One Act (Bayanihan 2).
Under Bayanihan 2, the national government will infuse P1 billion each to LandBank and DBP for interest subsidies for new and existing loans secured by LGUs.
But Velasco, who is the national president of League of Provinces of the Philippines (LPP), noted that the subsidized interest is only until December 31, 2022 and subject to annual repricing in the succeeding years.
The Marinduque governor asked if Bayanihan 2’s implementing rules and regulations (IRR) can specify the LGUs’ future interest rate after December 2022.
But Dominguez responded to Velasco that committing to future interest rates is not possible under a demand-driven financial market.
The finance chief explained that the LGU, as a borrower, should take the risk, just like in any business.
“Nobody can tell you, ‘Oh, the interest rate is going to be fixed for so long,’ unless you pay a premium for that,” he added.
Dominguez also thanked the local chief executives for the “invaluable work” they have been doing in fighting the pandemic and assured them of the national government’s support in helping LGUs bounce back from this crisis.“The national economy, after all, is the sum of all our local economies. LGUs are at the frontline of serving vulnerable communities. You are also catalysts for building a new economy while we do all we can to address this global health emergency,” Dominguez said. SOVEREIGNPH