The Asian Development Bank (ADB) has approved a $250-million loan to support the review of the country’s Local Government Code (LGC) centering on “finance and fiscal decentralization reforms” in the Philippines.
Aside from the $250-million loan by ADB, the LGC review would also be co-financed by France-based development group Agence Française de Development with a $150-million fund.
Juan Luis Gomez, ADB senior public management specialist for Southeast Asia, said in a statement that the $250-million loan would provide support to the national government in the revision of the LGC, which would improve fiscal processes and handling in the country.
“The Philippines has taken significant steps to improve the financing system of local government units [LGUs], and to foster transparent and accountable local governance practices. Reforms should help raise revenues and therefore improve services,” he added.
The LGC revisit would be the first since its enactment in 1991. The $250-million loan would also be ADB’s first to the Philippines for the year. The bank offered up to $1 billion to the country last year because of the assistance needed for the rebuilding of areas hit by Super Typhoon Yolanda.
According to the ADB, the LGC review should be able to address the problem of “weak local tax bases” as well as the “flaws in the design of transfers” between local governments that result in lower efficiency the delivery of government services.
“Despite these efforts, weak local tax bases and flaws in the design of transfers make it hard for poorer local governments to deliver the services their constituencies require. As a result, regional disparities in living standards remain wide. This could be efficiently addressed with a review of the [LGC],” the ADB said.
Other reforms lined up for LGC include performance-based mechanisms such as the Performance Challenge Fund and the Bottom-up-Budget that can “improve budget transparency and alignment of national and local development priorities.”
The multilateral agency said that it supports the revision of the LGC as LGUs represent 17 percent of yearly government expenditures, which greatly contribute to different sectors such as health, education, and housing and community development.
“Program reforms will also continue implementation of accountability mechanisms, such as the Full Disclosure Policy or the Citizen’s Satisfaction Index. Lastly, the program supports the government’s efforts to improve local financial management systems,” the ADB said.