Local Government Units are empowered under Section 296 of the Local Government Code (LGC) to create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic projects in accordance with the approved Local Development Plan and Public Investment Program. LGUs may avail of credit lines from government and private banks and lending institutions for the purpose of stabilizing local finances. Among others, LGUs are allowed to engage in deferred payments, contract loans, credits, and other forms of indebtedness to finance the construction, installation, improvement, expansion, operation, or maintenance of public facilities, infrastructure, housing projects, the acquisition of real property, and the implementation of other capital investment projects, subject to the terms and conditions as may be agreed upon by the LGU and the lender.
Given this opportunity, the Department of Finance as one of the oversight agencies of the LGUs, was in turn mandated to render technical assistance to LGUs in the availment of credit facilities, flotation of bonds, contracting of loans and issue guidelines for the purpose.
Under Section 324 of the LGC, the ceiling of LGU borrowing was defined allowing them to incur an appropriation for debt service amounting to 20% of its annual regular income.
Government regulates through ex-ante controls on LGU borrowings: i) An LGU must secure the Certificate of Net Debt Service Ceiling (NDSC) and Borrowing Capacity (BC) from BLGF and ii) A favourable Monetary Board Opinion from the BSP. Continue reading In was signed by Secretary Carlos G