The Asian Development Bank (ADB) will provide $250 million to help Philippine local government units (LGUs) deliver better and more effective public service through improved revenue generation, stronger public financial systems and regulatory frameworks, and increased transparency and accountability.
The policy-based loan was approved today by the ADB Board of Directors as the second phase of the Local Government Finance and Fiscal Decentralization Reform Program being implemented by the Department of Interior and Local Government, Department of Budget and Management, and the Bureau of Local Government Finance, an agency of the Department of Finance.
“Service delivery, especially in the rural areas, has lagged those of the more developed areas as rural LGUs do not have sufficient revenues,” said Stephen Schuster, an ADB Principal Financial Sector Specialist. “Therefore, the government has prioritized a number of initiatives to assist LGUs, including distributing national resources more equitably, and increasing their capacity to raise own-source revenues to improve the delivery of health, education, housing, and other services to communities.”
Under the Local Government Code, responsibility for service delivery was devolved and delegated to the LGUs. As a result, LGUs now account for about 27% of total government expenditures (2014), excluding debt amortization. While the Internal Revenue Allotment provides inter-governmental fiscal transfers to compensate, it is based on a formulaic approach that does not consider either the fiscal needs of the LGU or the ability of the LGU to fund necessary service delivery. In addition, over-reliance on the Internal Revenue Allotment dilutes the accountability between LGUs and their constituents that is provided by an efficient tax system.
The program has supported the government’s decentralization and public financial management reform agenda by addressing these constraints and helping LGUs widen their own-source revenue base while making it sustainable. It also helps LGUs enhance tax collection efficiency, access debt capital markets, strengthen public financial management systems, and create a more equitable fiscal framework geared towards the achievement of inclusive growth. Decentralization also improves governance and service delivery, with LGUs becoming more accountable to their constituencies.
