Local Government Units are empowered under Section 296 of the Local Government Code (LGC) to create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic projects in accordance with the approved Local Development Plan and Public Investment Program. LGUs may avail of credit lines from government and private banks and lending institutions for the purpose of stabilizing local finances. Among others, LGUs are allowed to engage in deferred payments, contract loans, credits, and other forms of indebtedness to finance the construction, installation, improvement , expansion, operation, or maintenance of public facilities, infrastructure, housing projects, the acquisition of real property, and the implementation of other capital investment projects, subject to the terms and conditions as may be agreed upon by the LGU and the lender.
Given this opportunity, the Department of Finance as one of the oversight agencies of the LGUs, was in turn mandated to render technical assistance to LGUs in the availment of credit facilities, flotation of bonds, contracting of loans and issue guidelines for the purpose.
Under Section 324 of the LGC, the ceiling of LGU borrowing was defined allowing them to incur an appropriation for debt service amounting to 20% of its annual regular income.
Government regulates through ex-ante controls on LGU borrowings: i) An LGU must secure the Certificate of Net Debt Service Ceiling (NDSC) and Borrowing Capacity (BC) from BLGF and ii) A favourable Monetary Board Opinion from the BSP.
A. STREAMLINED DOCUMENTARY REQUIREMENTS AND ITS GENERAL GUIDELINES PER DOF DEPARTMENT ORDER (DO) No
Dominguez III streamlining the certification of Net Debt Service Ceiling and Borrowing Capacity of LGUs. The new DO has effectively reduced streamlined the certification of NDSC and BC of LGUs by the BLGF, by reducing the documentary requirements form twelve (12) to four (4), defining the specific computational parameters, and improved the process to ensure faster, accurate and efficient certification process. The BLGF has also devolved the process review of completeness and orderliness of documents to all BLGF Regional Offices, and for the initial computation of the NDSC and BC.
C. GUIDELINES IN PROCESSING REQUESTS FOR MONETARY BOARD OPINION ON THE MONETARY AND BALANCE OF PAYMENTS IMPLICATIONS OF PROPOSED DOMESTIC BORROWINGS BY GOVERNMENT ENTITY PER BSP CIRCULAR NO. 926 SERIES OF 2016
a. The LGU shall submit a written request to the Bangko Sentral ng Pilipinas (BSP) for MB opinion on the monetary and BOP implications of its proposed borrowing prior to the loan release; b. The BSP shall acknowledge receipt of the request, with an initial evaluation of the documents/information submitted; c. Once the LGU has submitted the complete set of required documents/information, the matter shall be elevated to the MB for an opinion on the probable monetary and BOP implications of the proposed loan; d. The LGU shall be informed of the writing of the MB’s decision of its request for the opinion; e. No opinion will be issued by the MB in case the LGU loan has already been partially or fully disbursed; f. For LGU loans with amounts that exceed the borrowing capacity, as indicated in the certification on the borrowing and debt services capacity issued by the Bureau of Local Government Finance (BLGF), the MB opinion will refer only to the amount that is within the borrowing capacity; g. The LGU shall request a new MB opinion should there be any increase in the loan amount in excess of 10%, or a change in a manner of acquisition of the project/s to be funded after an MB opinion has been issued ; provided that no release has been made of the loan; and h. LGUs that are unable to avail of their loan during the one (1) year validity period shall request for a new MB opinion on their proposed loan.