The Bangko Sentral ng Pilipinas (BSP) has reviewed and processed 138 domestic borrowing requests worth P43.1 billion from local government units (LGUs) in the first six months of the year.
The total number of LGU loan proposals - mostly for infrastructure development - were 84 percent higher from 75 in the last semester (June to December 2022). Meanwhile, the amount of proposed borrowings increased by 172.9 percent from P15.8 billion in the second semester last year.
Reviewing LGU loan requests is part of BSP’s job to ensure transparency and good governance as the government’s advisor on official credit operations. It releases information such as amounts and purpose of the loans when issuing Monetary Board opinions (MBOs) on the proposed LGU domestic borrowings.
Also, Philippine laws mandate the BSP to conduct this process to monitor trends in public sector debt and to determine their impact on the monetary sector as well as on the economy’s external payments’ accounts.
In a statement Thursday, Nov. 9, the BSP explained that the significant increase in the number of LGUs seeking MBOs was due to the resumption of government plans and projects a year after the 2022 national and local elections.
During the first semester 2023, the requests for MBOs came from the following: 109 municipalities with loans proposals worth P16.1 billion; 21 cities with P24.1 billion proposed loans; four provinces with P2.9 billion proposed loans; and four barangays intending to borrow P21.5 million.
These LGUs are located mostly in Regions III or Central Luzon, Regions IV-A or the CALABARZON area, and Region VI in Western Visayas.
According to the BSP, the Monetary Board rendered its opinion on 126 LGU proposed borrowings of 138. The 126 LGU loans amounted to P41 billion.
The Monetary Board issuances were for 115 requests received in the first semester 2023 and 11 requests received in second semester 2022.
The remaining 23 requests received in the semester under review are awaiting the submission of complete information and documentary requirements by the borrowing institutions, said the BSP.
Meanwhile, the central bank noted that 64 percent of proposed loans will fund infrastructure projects. These include: the construction and/or improvement of farm-to-market/access roads and bridges; public markets; multi-purpose buildings/ business/commercial centers; health care facilities or hospitals; school buildings; solid waste management/materials recovery facilities; water system and septage treatment; and drainage and sewerage systems.
About 20.5 percent LGU proposed borrowings will finance the acquisition of heavy equipment and procurement of service vehicles while another 15.3 percent will be allocated for the acquisition of lots and/or site development for the eventual construction of various buildings/facilities as well as the installation of various e-governance systems. A small 0.2 percent will go to refinancing of previous loans.
Under Philippine laws, government entities including LGUs are required to seek BSP’s MBOs on their proposed borrowings. The Monetary Board is a seven-person policy-making body chaired by the BSP governor.
Section 123 of Republic Act No. 7653 or the New Central Bank Act of 1993, as amended by RA 11211 in 2019, requires the government, its political subdivisions or instrumentalities, to request the Monetary Board to “render its opinion on the monetary and external sector implications of their proposed loans prior to undertaking any credit operation.”