ADB approves $250-M loan for local government units’ service improvement

THE ASIAN Development Bank (ADB) has approved $250 million worth of loans to the Philippines, intended to help local government units (LGUs) in rural areas improve revenue generation, public financial systems and regulatory frameworks, and transparency and accountability.

In a statement, the ADB said the policy- based loan was approved yesterday by its board of directors as the second phase of the Local Government Finance and Fiscal Decentralization Reform Program.

The program is being implemented by the Department of Interior and Local Government, Department of Budget and Management, and the Department of Finance’s Bureau of Local Government Finance.

“Service delivery, especially in the rural areas, has lagged those of the more developed areas as rural LGUs do not have suff icient revenues,” said Stephen Schuster, an ADB Principal Financial Sector Specialist, in the press statement.

“Therefore, the government has prioritized a number of initiatives to assist LGUs, including distributing national resources more equitably, and increasing their capacity to raise own- source revenues to improve the delivery of health, education, housing, and other services to communities,” Mr. Schuster said.

Under the Local Government Code contained in Republic Act 7160 that was passed in 1991, responsibility for service delivery was devolved and delegated to the LGUs.

In 2014, LGUs accounted for about 27% of total government expenditures, excluding debt amortization.

However, the ADB said “[ w] hile the Internal Revenue Allotment ( IRA) provides intergovernmental fiscal transfers to compensate, it is based on a formulaic approach that does not consider either the fiscal needs of the LGU or the ability of the LGU to fund necessary service delivery.”

ADB also noted the “overreliance” on IRA, which reduces the accountability of LGUs that is provided by an efficient tax system.

The ADB- funded program has supported the government’s decentralization and public financial management reform agenda by addressing these constraints and helping LGUs establish and expand their ownsource revenue base while making it sustainable.

It also helps LGUs “enhance tax collection efficiency, access debt capital markets, strengthen public financial management systems, and create a more equitable fiscal framework geared towards the achievement of inclusive growth,” the bank said.

The ADB, with headquarters in Manila, was established in 1966 and is owned by 67 members, 48 of which are from the Asia and the Pacific region.—