LGU borrowings drop in H1 as Philippine recovers from pandemic

MANILA, Philippines — The amount borrowed by local government units (LGUs) from domestic creditors plunged by 63.7 percent to P20.2 billion in the first half of the year from P55.7 billion in the second half of last year, according to the Bangko Sentral ng Pilipinas (BSP).

Data showed the central bank’s Monetary Board received 107 requests from LGUs on their proposed loans, 44.6 percent down from the 193 requests in the second semester last year.

LGUs borrowed heavily in 2020 and 2021 to bankroll key infrastructure projects, such as health centers, quarantine facilities, as well as the purchase of personal protective equipment (PPE) and testing facilities amid the COVID-19 pandemic.

For the first semester, the BSP said the Monetary Board rendered its opinion on 120 proposed borrowings by LGUs worth P25.8 billion. This covered 98 requests made in the first semester and 22 requests in the second semester of 2021.

The requests for Monetary Board opinion came from six provinces with P2.4 billion, 12 cities with P8.7.billion, 84 municipalities with P9.1 billion, and five barangays with P41.1.million.

Of the total proposed LGU loans issued with Monetary Board opinion, 66 percent were allocated for infrastructure projects involving mostly the construction and/or improvement of public markets, farm-to-market/access roads and bridges, multi-purpose buildings/ business/ commercial centers, water system and septage treatment, government administrative buildings, healthcare facilities or hospitals, school buildings, public plaza/parks/ gymnasium/covered courts, and public transport terminals, among others.

There were also proposed loans for the acquisition of heavy equipment and procurement of rescue and/or service vehicles, which accounted for 23.6 percent of the total LGU loans.

Other proposed LGU loans, comprising 9.7 percent of the total, were allocated for the acquisition of lots and site development; 0.3 percent was intended for loan take out or refinancing; and 0.3 percent of the total proposed LGU loans were allocated for the construction of isolation facilities in support of the country’s COVID-19 pandemic response.??

Section 123 of Republic Act 7653 or the New Central Bank Act of 1993 mandates prior opinion of the Monetary Board on the proposed borrowings of government entities including LGUs.

The provision 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.

This provision of the law stems from the BSP’s role as the government’s advisor on official credit operations. It enables the BSP to monitor trends in public sector debt and assess its impact on the monetary sector and external payments position of the economy.

The National Capital Region (NCR) was the biggest borrower with P5.4 billion, led by Manila with P2.8 billion to finance the acquisition of various hospital equipment, furniture, and fixtures for the new Ospital ng Maynila as well as purchase of land for its Landless Program; and Pasay with P1.34 billion to bankroll the construction of the city housing project and refinance its outstanding loan with the Philippine National Bank.

In the provinces, the biggest borrowers were Cabanatuan City with P2.66 billion, Batangas with P2 billion, and Bohol with P1.12 billion, among others.