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LGU borrowing applications decline in first eight months

NEW DEBT sought by local government units (LGUs) declined by 72.53% year on year to P21.04 billion in the eight months to August, the Bureau of Local Government Finance (BLGF) reported.

The proxy indicator for LGU indebtedness is the issuance by the BLGF of 116 certificates of net debt service ceiling and borrowing capacity to LGUs, which included seven amendments, against 294 issued a year earlier.

These certificates were issued to 83 municipalities, 23 cities, four provinces, and six barangays.

Cities applied to borrow P8.16 billion, followed by municipalities (P8.02 billion), provinces (P4.83 billion), and barangays (P24.65 million).

The certifications are a leading indicator for the borrowing intentions of local governments, whose capacity for taking on debt must be certified by the BLGF, an arm of the Department of Finance.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort attributed the decline to the Supreme Court’s Mandanas ruling and the tight fiscal space.

“More funding allocated to LGUs would fundamentally reduce their borrowing requirements. Furthermore, this may also have to do with the need to reduce the government’s expenditures through more disciplined spending after the huge debt of P5 trillion incurred since the pandemic,” he said in a Viber message.

The Supreme Court ruled that LGUs are entitled to 40% of all national taxes, including those not collected by the Bureau of Internal Revenue, effectively increasing the tax take that subnational entities are entitled to.

The ruling raised the LGU allocation to P959 billion this year, up 37.89%.

In the eight months to August, LGUs’ total borrowing capacity was P49.44 billion, down 75.13% from a year earlier.

Cities had a borrowing capacity of P26.15 billion, followed by municipalities (P17.2 billion), provinces (P6.05 billion), and barangays (P37.24 million). 

In August, the BLGF released three certifications to LGUs, including one amendment, covering proposed loans worth P235 million, against P4.02 billion from a year earlier.

Bangar, La Union was the leading availer of loans in August with P200 million. The Cordillera Administrative Region availed of P35 million, while the request of barangay Turod in Sudipen, La Union is undergoing amendment.

The government registered a debt-to-gross domestic product (GDP) ratio of 62.1% as of the second quarter, above the 60% debt-to-GDP ratio considered manageable by multilateral lenders for developing economies. The ratio eased from 63.5% at the end of the first quarter.

The government estimates the debt-to-GDP ratio to drop to 61.8% at the end of the year. — Diego Gabriel C. Robles

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