Public Information
And Consultation
On LGU Credit Financing
The Bureau of Local Government Finance
Attached agency of the DOF
Supports the DOF in its mandate to “supervise
the revenue operations of all local
government units”
• Central Office in Manila, with 15 Regional Offices
• Mandated to “develop and promote plans and
programs for the improvement of resource management
systems, collection enforcement mechanisms and credit
utilization schemes at the local levels”
• Issues Certificate of Net Debt Service Ceiling (NDSC)
and Borrowing Capacity (BC) to LGUs
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Policy Thrust and LegalFramework
🔨
Local Debt Policy
Build capacity of local governments to borrow money to cover
their expenditure responsibilities, devolved functions
Prioritize financing capital infrastructure expenditure and tax
flows and to foster political accountability out of these
decisions
National Government has to manage LGU debts to:
▪ Prevent a systemic LGU debt crisis that could force theNational
Government to bail out heavily indebted LGUs;
▪ Strengthen the implementation of the statutory limit on LGU debts; and
▪ Promote responsible and credible debt management amongLGUs.
3
Policy Thrust and Legal Framework
Legal Framework of Subnational Debts
in the Philippines
Sec. 296 of LGC, Art. 395 Sec. 324 of LGC
LGC IRR Appropriations of 20% of the
LGU’s regular income for debt
LGUs may create indebtedness
servicing
and avail of credit facilities for
local infra and socio-economic
development projects with
government or private banks and
lending institutions
Art. 403 LGC IRR EO 127
DOF mandated to render BLGF to develop and
technical assistance to any LGU promote plans and programs
in the availment of credit facilities, for the improvement of
flotation of bonds, contracting of resource management
loans and issue guidelines for the systems, collection
purpose enforcement mechanisms and
credit utilization schemes at
the local levels
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Policy Thrust and Legal Framework
Forms of Local LIMITED PURPOSES
Indebtedness ✓ Construction, installation, improvement,
expansion, operation, or maintenance of
o Loans, Credits and Other public facilities, infrastructure facilities,
Forms of Indebtedness housing projects, acquisition of real
property, and the implementation of other
o Deferred Payment and
capital investment projects
Other Financial Schemes
✓ Establishment,development,or expansion of
o Bonds and Other Long- agricultural, industrial, commercial, house
Term Securities financing projects, livelihood projects, and
o Inter-Local Government other economic enterprises
Loans, Grants, and Other ✓ Acquire property, plant, machinery,
Subsidies equipment, and such necessary accessories
o Loans from funds secured ✓ Finance self-liquidating,income-producing
development or livelihood projects
by National Government
from foreign sources
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Policy Thrust and Legal Framework
Ex-ante control and regulations
DOF/BLGF Regulations
• LGU debt service ceiling and net
✓ Local Finance Circular (LFC) No. 1-2000: issued
borrowing capacity determined to enhance the access of all LGUs to credits and other forms
and certified by BLGF of indebtedness
• Monetary Board opinion on the ✓ LFC No. 01-2012: Amended the previous LFC to ensure
monetary and balance of a more accurate and appropriate evaluation of the maximum
payments implications borrowing and debt servicing capacities of all LGUs
• Local legislative authorization ✓ LFC No. 01-2014: Reduced requirements for 171 LGUs
and inclusion in the annual affected by Typhoon Yolanda, from 12 to 4 requirements, and
extending the validity by 1 year
investment plans and priorities
are required ✓ DOF Department Order No. 54.2016: Streamlined
requirements and process: 4 documents; Well-defined
computational parameters; Improved certification process;
Verification/ validation delegated to BLGF Regional Offices
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Policy Thrust and Legal Framework
Ex-ante control and regulations
BSP Monetary Board Regulations
• LGU debt service ceiling and net ✓ Circular No. 402: Revised Guidelines on the Flotation of
borrowing capacity determined Bonds by LGUsWithout NG Guarantee in 2003
and certified by BLGF
✓ Circular Letter No. CL-2008-050: Reminder to all
• Monetary Board opinion on the banks on prior MB Opinion under Sec.123 of R.A.No.7653;
monetary and balance of ✓ Circular No. 769: 2012 Guidelines on Requests for MB
payments implications Opinion of Proposed Domestic Borrowings by LGUs
• Local legislative authorization ✓ Circular No.797: EnforcementActions on Banks in
and inclusion in the annual Relation to Sec.123 of R.A.No.7653 (2013)
investment plans and priorities
✓ Circular No.819: 2013Amendments to Circular No.769
are required
✓ Circular No. 926: 2016 Guidelinesin Processing
Requests for MB Opinion
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Policy Thrust and Legal Framework
Ex-ante control and regulations
Requirements for LGUs
• LGU debt service ceiling and
net borrowing capacity Bonds and loans require approval of the local
determined and certified by legislative council
BLGF ✓ Local chief executive must be authorized by the local
legislative council through a Resolution to negotiate,enter
• Monetary Board opinion on the into, and sign contracts for and in behalf of the local
monetary and balance of government
payments implications
✓ Proposed project to be financed by the loan is included in
• Local legislative authorization theApprovedAnnual Investment Plan (AIP) for the current
and inclusion in the annual year
investment plans and priorities ✓ BSP requires the submission of a duly executed ordinance
are required approving the proposed borrowing, its purpose, terms and
conditions for the release of Loan Proceeds
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Local Government Lending Institution Bureau of Local Government Finance Bangko Sentral ng
Unit (LGU) (BLGF) Pilipinas
Local Council, through a Pre-Evaluation/Setting of
BLGF-RO BLGF-CO Evaluate LGU request
Resolution/Ordinance, authorizes the Terms and Conditions
and supporting
Local Chief Executive to negotiate
Evaluate LGU request and supporting documentary
and contract loans and other forms of
documentary requirements Final computation requirements
indebtedness
and issuance of
certificate of
NDSCBC
Submit Letter of Intent and negotiate Documents
with the lending institution Complete/ Compliant?
No
Submit to BLGF a written request for certification of LGU Net Debt Service
Ceiling and Borrowing Capacity, with complete supporting documents Yes
pursuant to DOF Department Order 054.2016 Monetary Board renders
Evaluate financial reports Opinion on the Monetary
of the LGU Balance and Payments
Submit the required additional documents implications of the
proposed LGU
borrowing, per BSP
Compute preliminarily LGU Net Debt Service
Circular No.926 s. 2016
Ceiling and Borrowing Capacity (NDSCBC)
Renegotiate with the lending institution for lower interest rate,
longer tenor, or consider other lending institutions, then resubmit
to BLGF
Submit to BLGF-CO all documentary
Yes requirements and the preliminary computation
for the issuance of certificate of NDSCBC
Proposed Loan Higher than BLGF Certification?
No
Submit to BSP a written request for Monetary Board Opinion
Submit to the Lending Institutions the BLGF
Approval and Signing of Loan Receive LGU Post
Certification, MB Opinion and Other
Agreement with the LGU Borrowing Report Receive LGU Post-
Requirements
Borrowing Report
Record receipt of Loan Proceeds and
prepare borrowing reports for submission to Release of Loan
BLGF-RO and BSP
LGU Loan Application Process
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Bureau of Local Government Finance (BLGF)
BLGF-RO BLGF-CO
Evaluate LGU request and supporting documentary requirements
Final computation and issuance of
certificate of NDSCBC
Documents
Complete/ Compliant?
Yes
Evaluate financial reports of the LGU
Compute preliminarily LGU Net Debt Service Ceiling and Borrowing
Capacity (NDSCBC)
Submit to BLGF-CO all documentary requirements and the preliminary
computation for the issuance of certificate of NDSCBC
BLGF Certification Process
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BLGF Debt Capacity Certification
LGU Borrowing Capacity
Debt Service Ceiling (DSC)
1 • 20% x Annual Regular Income (ARI)
ARI is the average previous 3-year locally sourced
income + other shares from national taxes basedon
COA data, + actual annual IRA based on DBMdata
Net DSC (NDSC)
2 • DSC less All amortizations payable Local Fiscal
Policy Service
during the year
Local Debt Monitoring
and Evaluation Division
Borrowing Capacity (BC)
3 • NDSC x Annuity Factor
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BLGF Debt Capacity Certification
Documentary Requirements
1 2 3 4
Letter Request from Certification of existing of Commission on Audit Certification
the Local Chief loan/s duly certified by the (COA) Annual Audit issued by the
Executive indicating the Local Treasurer indicating Certificate for the most LI stating that it
specific ✓ Types and purpose of loans & recent year showing no shall not require
✓ Lending institution (LI); other obligations contracted; adverse finding against LGU deposits
✓ Terms and condition of ✓ Name of the LI; the LGU, and supported as
proposed loan; and ✓ Date of approval & maturity; by the year-end financial compensating
✓ The purpose/s of the ✓ Terms & conditions reports balance for the
loan. ✓ Remaining balances of loans ✓ Pre-closing trial balance; loan (for non-
and other obligations; and ✓ Detailed Statement of authorized
✓ Annual amortization schedules Financial Performance government
from the LI depository banks)
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BLGF Debt Capacity Certification
Documentary Requirements
Should be supported by the Offer Sheet from the
1 Lending Institution indicating the specific
✓ Specific loan purpose
✓ Specified interest rate
Letter Request from
✓ Amount of loan
the Local Chief
Executive indicating ✓ Tenor and grace period
the specific ✓ Fees and other charges
✓ Lending institution ✓ Security requirements
✓ Specific loan purpose
✓ Specified interest rate
✓ Amount of loan The loan purpose, amount of loan, and interest
✓ Tenor and grace period rate, among others, should be the same in the
✓ Contact details of
authorized Letter Request and Offer Sheet.
representative
✓ Mode of receipt
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BLGF Debt Capacity Certification
Documentary Requirements
The Amortization Schedule from the Lending
Institution should include
2 ✓
✓
Name of project
Amount of loan
✓ Term and interest rate
✓ Mode of payment
Certification of existing of ✓ Periodicals
loan/s duly certified by the
Local Treasurer indicating ✓ Outstanding Balance
✓ Types and purpose of loans & ➢ Principal
other obligations contracted; ➢ Interest
✓ Name of the LI; ➢ Total Amount Due
✓ Date of approval & maturity;
✓ Terms & conditions
✓ Remaining balances of loans
and other obligations; and Applying LGUs without existing loan still need to
Annual amortization schedules
✓
from the LI submit Certification by the Local Treasurer.
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BLGF Debt Capacity Certification
Documentary Requirements
Adverse findings
3 For LGUs with adverse
refer to
observations of COA on local
findings on its latest financial management and
COA Annual Audit matters specifically concerning
Commission on Audit the Local Treasurer, such as but
Report, an Agency not limited to:
(COA) Annual Audit Action and Status of
Certificate for the most • Unremitted and undeposited
recent year showing no Implementation collection;
adverse finding against (AAPSI) duly received • Unliquidated cash advances;
the LGU, and supported by COA shall be • Unremitted mandatory
by the year-end financial required. The status of contributions of GSIS,
reports PAGIBIG, Philhealth,
recommendations in withholding tax to BIR; and
Pre-closing trial balance; the AAPSI may be Unreconciled cash book with
✓
Detailed Statement of
•
validated by the BLGF, the Bank Reconciliation
✓
Financial Performance
if necessary. Statement and Subsidiary
Ledger.
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BLGF Debt Capacity Certification
Documentary Requirements
Latest DOF Policy on Depository Banks
4 Department Circular No. 01.2017 dated 11 May 2017
Certification
Amended Guidelines on Authorized
issued by the Government Depository Banks (AGDBs)
LI stating that it LBP, DBP, PPSB, Al
• AGDBs per Sec. 5.2:
Amanah Islamic Investment Bank
shall not require
LGU deposits
as of the Philippines, UCPB and PVB.
compensating
balance for the
loan (for non-
authorized
government
depository banks)
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BLGF Debt Capacity Certification
In case the LGU has been declared under the state of calamity either by
the national or local authorities shall, for a period of one (1) year from the
declaration of state of calamity, be required only to submit the Letter of the
Chief Executive and Certification of Existing Loans of the Treasurer, together
with certified copy of the declaration.
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BLGF Debt Capacity Certification
Features of BLGF
Certification
• 3 Parts: Letter to the Local Chief
Executive, Certificate, and
Directives to the Local Treasurer
• Controlled; original issued each
for LGU, Lending Institution, and
BSP
• Compliant with BSP Circular No.
926
• Free of charge
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BLGF Debt Capacity Certification
Latest MC on Issuance of NDSCBC:
ACTION ON EXPIRED CERTIFICATES
BLGF MC NO. 018.2018
All requests for issuance of updated CNDSC/BC
shall be filed by the concerned LGU directly to
the BLGF Central Office if such request does
not constitute change/s in the:
i) Lending Institution;
ii) Loan Purpose;
iii) Terms and Conditions; or
iv) Projects Cost.
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BLGF Debt Capacity Certification
Average Issued Certificates per year
Region III 39
Region IV-A 29
Region VI 27
Region XII 23
Region V 22
Region X 22
Region IX 22
Region VIII 21
Region I 19
Region XI 18
Region VII 18
BLGF issues
Region II 15 an average of
Region XIII 14
Region IV-B 13
316 certificates
CAR 8 annually.
NCR 7
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Local Debt Profile and Trends
Annual Debt Servicing < 20% Statutory Limit
LGU Outstanding Loans
20,000 6.00%
18,000 86,364
4.87%
4.67% 5.00% 94,161
16,000 4.54% 4.45% 4.54% 75,914
4.37%
4.14% 86,020
14,000
3.98%
68,239 69,984
3.71% 3.65% 4.00%
12,000 69,899 70,887 68,115
10,000 3.00% 57,523
8,000
2.00%
6,000
4,000
1.00%
2,000
- 0.00%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Debt Service Ratio of Debt Service to Total Expenditures 21
Local Debt Profile and Trends
LGU Loans and Borrowings LGUs Outstanding Loans
to GDP and Total Revenues to GDP
18,000 3.77% 4.00% 100,000 0.76% 0.80%
3.66%
3.43% 0.72%
16,000 2.57% 3.50% 90,000 0.72% 0.66% 0.70%
2.80%
14,000 0.61%
2.42% 3.00%
80,000 0.59%
2.60% 0.57%
0.54% 0.55% 0.54% 0.60%
12,000 70,000
2.12% 1.69% 2.50%
1.91%
10,000 0.50%
60,000
2.00%
8,000 50,000 0.40%
1.50%
6,000 40,000
0.30%
1.00%
4,000 30,000
0.20%
2,000 0.50%
0.14% 0.15% 0.11% 0.07% 0.10% 0.10% 0.09% 20,000
0.09% 0.07% 0.07%
- 0.00% 0.10%
10,000
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
LGUs Receipts from Loans and Borrowings - 0.00%
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Ratio of LGU Loans and Borrowings to GDP
Ratio of Loans and Borrowings to Total Revenue LGUs Outstanding Loans Ratio of LGUs Outstanding Loans to GDP
22
Local Debt Profile andTrends
Potential Projects Through Credit
03 04
02 05
01 06
07 12
08 11
09 10
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Local Debt Profile and Trends
Ratio of LGUs Issued w/ Certificates
2018 Statistics 35.00%
yearly average
30.00%
30.45%
25.00% 27.93%
Issued BLGF Certificates
20.00%
15.00%
15.72%
10.00%
5.00%
0.04%
17 25 0.00%
Province Province City Municipality Barangay
40
City
BLGF Issued Certificates
Municipality
- - - Election Year
516
Barangay
234 413
384
340
284 279 291
157 177
2010 2011 2012 2013 2014 2015 2016 2017 2018
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Local Debt Profile and Trends
2018 LGU Loan Statistics Profile of Lending Institutions
Outstanding
Financial Institution
Balances (Php B) 11.45%
Government Financial Institutions: Government
Land Bank of the Philippines 48.20 Financial
Development Bank of the Philippines 26.45 Institutions
Municipal Development Fund Office 8.41
Private
Overseas Filipino Bank 0.32 88.55%
L OA N S
Financial
Sub-total 83.38
Institutions
Private Financial Institutions:
Philippine National Bank 6.98 Profile of Loan Purpose
Philippine Veterans Bank 2.85
Allied Bank* 0.02 Economic Services
Bank of the Philippine Islands* 0.02 4% 3%
EastWest Bank* 0.57 5% General Public Services
Sub-total 10.43
9% Capital/ Investment
Grand Total 93.81
Expenditure
Education, Culture, and
11% Sports
BOND S
Outstanding 51%
Financial Institution Health, Nutrition, and
Balances (Php B)
Philippine Veterans Bank 0.31 Population Control
Housing and Community
Local Government Unit Guarantee Corporation 0.04
Development
Grand Total 0.35 17%
Others
25
Credit financing has a vital role in local development
when used responsibly and strategically.
It must also always be
viewed in the context of
building local revenue
autonomy and improving
the quality of public
service delivery.
Maraming Salamat!
THANKS!
ANY QUESTIONS?
You can find us at:
[email protected]
(02) 522 87 70
