As customary, more local governments ramped up their borrowings ahead of the midterm elections in 2025, with the end-September 2024 tally up by 29 percent year-on-year to P87.9 billion.
The latest data of the Department of Finance's Bureau of Local Government Finance (DOF-BLGF) showed that the number of local government units (LGUs) issued by the agency with certificates of net debt service ceiling and borrowing capacity (CNDSCBCs) from January to September of this year also increased to 239 from the 210 LGUs that obtained loans in the first nine months of last year.
These 239 LGUs' end-September total loan requirements exceeded the P68.1 billion in LGU borrowings a year ago.
LGUs need to submit CNDSCBCs to government financial institutions (GFI) as well as private banks to prove that they can repay their obligations.
DOF-BLGF data showed that across all of the LGUs that secured loans during the nine-month period, their combined borrowing capacity totaled P184.6 billion or more than double their total loans, which meant that they can indeed settle their debts.
From January to September, 15 provinces, 33 cities, 190 municipalities as well as one barangay borrowed money for their priority programs and projects.
In the month of September alone, 40 LGUs—two provinces, six cities and 32 municipalities—borrowed a total of P21.5 billion, the highest monthly LGU borrowings so far this year. Their total loan capacity reached P44.3 billion.
While more LGUs—42, composed of three provinces, five cities and 34 municipalities—borrowed back in July, their total loan requirement was lower, at over P16 billion, with a combined borrowing capacity of P28.8 billion.
Based on the DOF-BLGF report, LGUs that borrowed in September would spend loan proceeds mostly on infrastructure.
For instance, Butuan City, which was the biggest LGU-borrower last September, sought P6 million to fund the construction and development of the first phase of Butuan Logistical Seaport in Barangay Lumbocan. The city has a borrowing capacity of P6.1 million, a bit larger than its loan proposal.
LGU borrowings have usually been rising ahead of elections—for instance, they climbed from P86.8 billion in 2020 to P96.7 billion in 2021, before the presidential election of 2022. But LGU loans declined to P38.3 billion in 2022, which marked the turnover to new administrations across both the national and local governments.
For one, LGUs borrowed more during the prolonged COVID-19 pandemic to fight the ill-effects of the most stringent cross-border lockdowns.
The drop in 2022 LGU loans may also be attributed to the ban on new projects, especially infrastructure, before election day.
"Based on historical data, we usually see a cycle of LGU borrowings—surge a year before the election period, then tapering during election campaign period, because of the prohibition on procurement before and after elections," a local government finance expert told Manila Bulletin.
Since it's also the time when incumbent politicians need to show-off projects to their constituents, it's in these months leading to election season that "we are seeing so many applications" from LGUs wanting to borrow funds, the expert said.
The expert nonetheless cited that "there is no prohibition or stoppage at any time when it comes to LGU borrowings."
LGUs can borrow even during campaign period—DOF-BLGF data showed that 58 LGUs secured P10.7 billion in loan from March to May 2022, even as they cannot spend proceeds on new projects due to the election ban.
In 2023, with LGU leaders having already hit the ground running, 313 LGUs borrowed a total of P92.7 billion, vis-à-vis their combined loan capacity of P198.2 billion.
Also, it can be recalled that LGUs enjoyed a jump in their national tax allotment (NTA) in 2022—amounting to over P959 billion, compared with their formerly called internal revenue allotment (IRA) worth P695.5 billion in 2021.
It was in 2022 when the government first implemented the Supreme Court's Mandanas-Garcia decision sourcing LGU shares in the national budget from all internal revenue taxes collected by the bureaus of Customs (BOC) and of Internal Revenue (BIR). In the past, LGUs' IRA only came from BIR collections.
However, "for some LGUs, especially the smaller ones, the NTA may not be enough because the tax base in their area may be very limited," Maria Teresa S. Habitan, a former long-time ranking DOF official who's now Local Government Finance Institute chancellor at the state-run Philippine Tax Institute (PTA), explained to Manila Bulletin.
"There are also hurdles before LGUs can borrow. Not all of them can easily borrow, so smaller LGUs are really heavily dependent on the NTA," Habitan added.
For Diwa C. Guinigundo, who's the Philippine country analyst for the New York-based think tank GlobalSource Partners, the increase in LGUs' NTA "should be enough, especially there are also local taxes and government fees."
"If LGUs would just do proper budgeting of public revenues and expenditures, incurring loans would otherwise be unnecessary," Guinigundo, who as a former Bangko Sentral ng Pilipinas (BSP) deputy governor also oversaw LGU borrowings, pointed out to Manila Bulletin.
"But LGUs found a way to augment their NTAs and local government taxes and fees, and this is through the provision of the Local Government Code. If they would like to do more than what their NTAs and local revenues would allow, borrowing from banks is a logical course of action," Guinigundo noted.
"Thus, auditing at the local level should be done with more fine tooth comb," he added.
LGUs' annual outstanding loans from banks and other lending institutions are on a steady rise, from P30.9 billion in 2004 or two decades earlier, to P73.2 billion in 2014 or one decade ago, and further higher to P136.6 billion in 2021, the latest available DOF-BLGF data showed.
These outstanding LGU borrowings were from the following public and private lenders: Asia United Bank, Bank of the Philippine Islands (BPI); Development Bank of the Philippines; EastWest Bank; the former DOF-attached but now abolished Municipal Development Fund Office; Land Bank of the Philippines; Overseas Filipino Bank and its precursor, Philippine Postal Savings Bank; Philippine National Bank (PNB); Philippine Veterans Bank; the former Allied Bank that had merged with PNB; as well as Robinsons Bank, which merged with BPI early this year.