The Department of Finance over the weekend asked chief executives of local government units to use their healthy borrowing position by availing of the largely untapped P300-billion credit financing window of state-owned Land Bank of the Philippines to bankroll projects that will help the country recover from the coronavirus-induced global economic crisis.
Finance Secretary Carlos Dominguez III said barely a third of provinces, cities and municipalities had tapped into LandBank’s P300-billion facility that is available for credit-financing needs.
Speaking at a recent virtual meeting of the Union of Local Authorities of the Philippines, Dominguez said based on the DOF’s Bureau of Local Government Finance data, only 35 percent to 40 percent of LGUs in the country had availed 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 LGUs.
He said P170 billion to P180 billion in loanable amount was available for LGUs.
“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 allocations from the national government.
The virtual ULAP meeting was also attended by LandBank president and chief executive Cecilia Borromeo, DBP president and chief executive 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.
Velasco, the national president of League of Provinces of the Philippines, said the subsidized interest would be only until Dec. 31, 2022 and subject to annual repricing in the succeeding years.
The Marinduque governor asked if Bayanihan 2’s implementing rules and regulations could specify the LGUs’ future interest rate after December 2022.
Dominguez said, however, that committing to future interest rates is not possible under a demand-driven financial market.
The finance chief said 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.
Meanwhile, Dominguez said LGUs could count on several streams of support under Bayanihan 2 to restart their respective local economies and rescue businesses.
These include the extension of the carry-over period of net losses in 2020 and 2021 from three to five years for businesses.
Dominguez said the extension would allow micro, small and medium enterprises 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.