Challenge
The Philippines is a country with a long-standing history of fiscal decentralization. Municipalities have been authorized, in principle, to access debt financing as far back as 1975. Despite significant investment requirements and a generally permissive enabling environment, overall debt levels remain low. Government financial institutions (GFIs) dominate the market, holding close to 90 percent of the total debt stock of local government units (LGUs) as of 2020. Since the 1990s, a number of LGUs have issued bonds for investment capital. However this trend has diminished in the last 10 years. Similarly, the share of lending by private banks has also decreased over the years (although not as precipitously as bonds). A significant recent development is the Mandanas-Garcia ruling by the Supreme Court in 2018 (reaffirmed in 2019), which mandates that LGUs must receive a greater share of revenue allotments from the central government. As a result, the Department of the Interior and Local Government (DILG) estimates that revenue allotments to LGUs will go up by close to 28 percent.
Approach
The World Bank Group’s City Creditworthiness Initiative (CCI) helps entities assess their creditworthiness, capital investment planning, financing needs and options. Stakeholder alignment and the application of CCI’s well-tested approach and suite of analytical products can bring significant benefits to LGUs. The creditworthiness academy is a core product of CCI, where senior financial officers of local governments learn best practice in creditworthy financial management, self-assess their own challenges, and prepare action plans to remedy identified issues. The academy also addresses core legal and regulatory constraints regarding access to long-term financing options for investment. In the academy, participants work through the City Cred self-assessment tool to identify priority areas of action that will inform the development of customized, context-specific action plans.
Results
Sixty city treasurers, planning and budget officers, and city administrators from 15 cities participated in the Philippines’ Local Government Creditworthiness Academy on Nov 22-25, 2022. These cities were Bacolod, Baguio, Batangas, Cagayan de Oro, Cebu, Digos, General Santos, Lapu-Lapu, Makati, Mandaluyong, Manila, Muntinlupa, Pasig, Quezon City, Surigao. Discussions and planning during the academy pointed to several options that could be considered moving forward, including bolstering the financing options available to LGUs in addition to the current facilities offered by government financial institutions. Capacity building support for LGUs are also needed in integrating long-term capital planning (including integration of spatial, climate change, infrastructure, and financial dimensions), capital improvement planning, and capital budgeting.
Partners
The Philippines’ Local Government Creditworthiness Academy was organized in partnership with the Department of Finance - Bureau of Local Government Finance and the Department of the Interior and Local Government Development – Bureau of Local Government Development. The event was led by the World Bank’s CCI team in collaboration with the International Finance Corporation’s Cities teams. The academy was supported with funding from the Public-Private Infrastructure Advisory Facility and the Korean Ministry of Economy and Finance.
