The Development Bank of the Philippines (DBP) is setting up a Local Government Unit (LGU) credit rating system in collaboration with the Department of Finance (DoF), state regulators and multi-lateral lending institutions.
The proposed rating system will mainstream bond flotation as a sustainable financing option for local development projects, according to DBP President and Chief Executive Officer Emmanuel G. Herbosa.
Specifically, it will provide the bond market with credible risk indicators of individual LGU bonds as well as information on outstanding bond issues which would help buoy confidence and improve risk-appetite of potential investors.
“DBP hopes to institute an LGU-rating organization, much like the credit rating agencies which rate the viability of investments relative to the likelihood of default,” he explained.
“Once the LGU Bond Market has gained firm footing, we expect a significant increase in development initiatives nationwide, as it accords a substitute mode of financing.”
Some 81 provinces, 144 cities, 1,490 municipalities, and more than 42,000 barangays across the country fall under the administrative supervision of the Executive Branch through the Department of Interior and Local Government and the DoF.
The DBP’s extensive experience with the LGU sector would help advance the LGU bond market as an essential financial resource to bankroll essential critical infrastructure and social development projects.
Normally, these projects rely on appropriations from the National Government through the Internal Revenue Allotment.
Through the credit-rating system, LGUs would be able to diversify funds sources be based on needs, revenue-earning capacity, and financial maturity, Herbosa underscored.
“DBP would establish a viable risk model that is flexible, pragmatic and forward-looking,” he pointed out.
“Once all LGUs are rated effectively, DBP could easily align its marketing efforts and provide strategic support, especially to those who need financial assistance.”
“We shall continue to explore innovative and sustainable financing solutions so that communities can continue to recover and rebuild from the crippling effects of the public health crisis,” he pledged.