The Department of Finance (DOF) urged the chief executives of local government units (LGUs) to borrow money to bankroll projects that would help the country recover from the coronavirus-induced global economic crisis.
During a recent dialogue with the local officials, Finance Secretary Carlos G. Dominguez III revealed that the P300-billion credit financing window under the Land Bank of the Philippines (LandBank) earmarked for LGUs is well underutilized.
Dominguez disclosed that barely a third of provinces, cities and municipalities have tapped into LandBank's P300-billion loan facility that is available for LGUs credit-financing needs.
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 the Union of Local Authorities of the Philippines (ULAP), an umbrella organization of all leagues of LGUs.
There is still around P170 billion to P180 billion loanable amount available for LGUs, the government’s chief economic manager pointed out during his dialogue with ULAP members.
“There is a lot of capacity, but there is no utilization of that capacity,” Dominguez said.
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.
During the same meeting, 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 Development Bank of the Philippines 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, 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.
“There is no certainty as to what the interest rate regime will be next year, or the year after, or in 2023, there is none, it’s a market. The price of money is going to change, I don’t know whether it will go up or go down,” Dominguez said.
“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.
Meanwhile, Dominguez said LGUs can continue to count on several streams of support under Bayanihan 2, to restart their respective local economies and rescue businesses.