LGUs face stricter rules in accessing bank loans

Posted at 06/08/2012 1:09 PM

MANILA, Philippines - Local government units (LGUs) are facing stricter requirements when applying for authority to borrow money from banks and other financial institutions.

The Bureau of Local Government Finance (BLGF) issued Local Finance Circular 1-2012, which laid out new documentary requirements that LGUs need to submit before being issued Certificates of Borrowing and Debt Service Capacities if they need to borrow money.

Finance Secretary Cesar Purisima, who signed the circular, said the government wants to make sure LGUs do not abuse their right to borrow.

Under the new circular, the following documents were added to the original requirements:

  • letter-request from the local chief executive indicating the lending institution and the purpose and terms of the loan;
  • certification of absence or existing and approved loans, when applicable;
  • certification by local accountant that LGU has not incurred default in payment of amortization of an existing loan;
  • certification from the secretary of the Sanggunian or the local legislative body that the proposed project to be financed by the loan is included in the Approved Annual Investment Plan for the current year;
  • authenticated copy of the resolution authorizing the local chief executive to negotiate and contract a loan in behalf of the LGU;
  • certification issued by the lending institution stating that it shall not require LGU deposits as compensating balance for the loan if the lender is a private entity;
  • Seal of Good Housekeeping from the Department of Interior and Local Government (DILG) and;
  • proof of compliance with the full disclosure policy of the DILG.

Original requirements under the earlier circular are as follows:

  • statement of actual income and expenditures and certification of internal revenue allotment (IRA) received for the past three years;
  • certification of taxable assessed value for the past three years and dates of the last general revision of real property assessments;
  • certification of existing loans, if any and annual audit report from the Commission on Audit for the past three years.

Purisima said LGUs should also exercise fiscal discipline.
 
"We have made significant reforms, one of them the directive to revised assessed real property values, in order to allow LGUs to raise more revenues. The idea is that you spend only as much as you earn," he said.
 
"But should you need to borrow, as the national government does, we want to make sure that these units have healthy balance sheets enough not only to cover their loans, but more importantly to continue their service to the people in the long run."