The Department of Finance (DOF) is urging chief executives of local government units (LGUs) to use their healthy borrowing position by availing of a largely untapped P300-billion credit financing window under the state-owned Land Bank of the Philippines (LandBank) to bankroll projects that would help the country recover from the coronavirus-induced global economic crisis.

Finance Secretary Carlos Dominguez III said that barely a third of provinces, cities and municipalities have tapped into LandBank’s P300-billion facility that is available for their credit-financing needs.

Speaking at a recent virtual meeting of the Union of Local Authorities of the Philippines (ULAP), Dominguez disclosed that, based on the DOF’s Bureau of Local Government Finance (BLGF) data, only around 35 percent to 40 percent of LGUs in the country have availed themselves of loans despite very reasonable terms of 10-years at an interest rate of 4 percent to 4.5 percent.

“I want to point out that the actual borrowings of LGUs are far below their capacity. They have only borrowed less than half,” Dominguez told members of ULAP, an umbrella organization of all leagues of LGUs.

There is still around P170 billion to P180 billion loanable amount available for LGUs, the government’s chief economic manager pointed out during his dialogue with ULAP members at the event.

“There is a lot of capacity, but there is no utilization of that capacity,” Dominguez said.

LGUs are considered low-risk borrowers because they can pay for their loans with their annual internal revenue allotment (IRA) allocations from the national government.

During the same virtual ULAP meeting, also attended by LandBank President-CEO Cecilia Borromeo and DBP President-CEO Emmanuel Herbosa, Marinduque Governor Presbitero Velasco Jr. raised concerns over the interest rate on the loan program for LGUs under the Bayanihan to Recover as One Act (Bayanihan 2).

Under Bayanihan 2, the national government will infuse P1 billion each to LandBank and DBP for interest subsidies for new and existing loans secured by LGUs.

But Velasco, who is the national president of League of Provinces of the Philippines (LPP), noted that the subsidized interest is only until December 31, 2022 and subject to annual repricing in the succeeding years.

The Marinduque governor asked if Bayanihan 2’s implementing rules and regulations (IRR) can specify the LGUs’ future interest rate after December 2022.

But Dominguez responded to Velasco that committing to future interest rates is not possible under a demand-driven financial market.

The finance chief explained that the LGU, as a borrower, should take the risk, just like in any business.

“There is no certainty as to what the interest rate regime will be next year, or the year after, or in 2023, there is none, it’s a market. The price of money is going to change, I don’t know whether it will go up or go down,” Dominguez said.

“Nobody can tell you, ‘Oh, the interest rate is going to be fixed for so long,’ unless you pay a premium for that,” he added.

Meanwhile, Dominguez said LGUs can continue to count on several streams of support under Bayanihan 2, to restart their respective local economies and rescue businesses through the following:

· Extension of the carry-over period of net losses in 2020 and 2021 from three to five years for businesses;

· Dominguez said this extension will allow micro, small and medium enterprises (MSMEs) to deduct incurred losses from tax payments for a longer period, thus giving them more time to set their finances in order and return to profitability; and

· Infusion of more capital to government financial institutions (GFIs) to dramatically expand their lending to MSMEs.

This will have a large multiplier effect in economic activity, he said, given that every peso pumped into GFIs will generate around 10 times its value in credit.

Dominguez thanked the local chief executives for the “invaluable work” they have been doing in fighting the pandemic and assured them of the national government’s support in helping LGUs bounce back from this crisis.

“The national economy, after all, is the sum of all our local economies. LGUs are at the frontline of serving vulnerable communities. You are also catalysts for building a new economy while we do all we can to address this global health emergency,” Dominguez said.

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