Local government units (LGUs) should optimize their increased budgets from the Mandanas-ruling in setting up plans on capital investments to address basic and growing needs of their constituents, the Cabinet official said.

In a statement, Finance Secretary Benjamin Diokno said the full devolution of certain functions from the executive branch to LGUs increased the responsibilities of local executives in providing basic services to their constituents.

Moreover, the Mandanas-ruling has expanded scope of local development projects that LGUs need for effective implementation, Diokno said.

“Local 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 investments,” Diokno said.

Under Executive Order No. 138, issued by former President Duterte, provides for the full devolution of some functions of the executive branch of the government, including implementation of local infrastructure projects, to LGUs.

Likewise, EO No. 138 allowed the autonomy of LGUs, granting them, among others, the ability to borrow resources to improve local facilities and services.

However, data showed that LGUs have a low appetite for borrowing.

In the past five years, only around 62 percent of LGUs have availed of credit. For 2021, LGU borrowings only amounted to P136.6 billion or around 0.74 percent of the country’s gross domestic product (GDP).

The Bureau of Local Government Finance (BLGF), which is tasked to monitor and evaluate LGU borrowings, noted that LGUs were only able to utilize 51.5 percent 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.

To encourage local borrowing, the BLGF issued the Certificate of Net Debt Service Ceiling and Borrowing Capacity to establish a maximum credit amount that LGUs can refer to.

The initiative is part of the government’s engagement with the World Bank Group where LGUs, especially city government stakeholders, will be given access to knowledge and tools to design creditworthy local strategies in planning and implementing capital investment projects, said Diokno.

“This initiative will steer our LGUs on the path to creditworthiness, which is key to accessing long-term financing required for sustainable investments,” Diokno said.