The various local government units (LGU) proposed borrowing P48.9 billion in the second half of 2023 for purposes of funding mostly public infrastructure projects that impact their constituents, the policy-making monetary board of the Bangko Sentral ng Pilipinas (BSP) said.
This was 15.2 percent more than LGU borrowing proposals in the first half when such aggregated only P43.1 billion.
According to the BSP, a total 159 LGU requests were submitted to the monetary board (MB) for transparency reasons consistent with the terms of the New Central Bank Act mandating government and its instrumentalities to seek the opinion of the MB for such exercises.
Public sector debt exercises have monetary policy implications such as the level of debt, domestic or external, borne by the public sector, and the capacity of the government to service them as and when they mature.
“In the second semester of 2023, the BSP received a total of 159 requests for MBOs on LGUs’ proposed domestic borrowings amounting to P48.9 billion. The total number of LGU requests and total amount were higher by 15.2 percent and 13.5 percent, respectively, compared with the 138 requests received amounting to P43.1 billion in S1 2023. The requests for MBOs came from 123 municipalities (P15.9 billion), 20 cities (P22.6 billion), 11 provinces (P10.3 billion) and five (5) barangays (P109.3 million) which were located mostly in Regions III (Central Luzon), IV-A (CALABARZON), V (Bicol), VI (Western Visayas), VII (Central Visayas), and XII (SOCCSKSARGEN).
“During the semester in review, the MB rendered its opinion on 143 LGU proposed borrowings totaling P45.0 billion. The said MB issuances were for 125 requests received in S2 2023 and 18 requests received in S1 2023. The remaining 34 requests received in the semester under review are awaiting the submission of complete information and/or documentary requirements by the borrowing institutions,” the BSP said.
According to the BSP, the majority of loans were intended for infrastructure projects (61.4 percent), such as the construction and/or improvement of farm-to-market/access roads and bridges, public markets, multi-purpose buildings/ business/ commercial centers, health care facilities or hospitals, school buildings, solid waste management/materials recovery facilities, water system and septage treatment, and drainage and sewerage systems.
Some LGU borrowings (comprising 19.5 percent) were intended for the acquisition of lots and/or site development for the eventual construction of various buildings/facilities as well as permanent working capital for the acquisition of Palay from small farmers, and acquisition and installation of various e-governance systems, among others. Other purposes (19.0 percent) indicated in the proposed loans were the acquisition of heavy equipment and procurement of service vehicles.
The issuance of MB opinions on domestic borrowings is pursuant to Section 123 of Republic Act 7653, otherwise known as the New Central Bank Act of 1993, as amended by R.A. No. 11211, which states that the government, including its political subdivisions or instrumentalities, is required to request an MB opinion on the monetary and external sector implications of their proposed loan/s prior to undertaking any credit operation.
This provision of the law stems from the BSP’s role as the government’s advisor on official credit operations. This process enables the BSP to monitor trends in public sector debt and assess their impact on the monetary sector and external payments position of the economy.
