ADB allots $500 M for Phl’s LGU fiscal reform program

MANILA, Philippines - The Asian Development Bank (ADB) is setting aside $500 million for the Philippines’ Local Government Finance and Fiscal Decentralization Reform Program. In addition, the ADB is willing to provide a $1-million technical assistance (TA) grant for the program.

The policy-based $500-million loan will be used to get the reform program off the ground, which will be issued in two tentative tranches of $250 million each starting this year and the second in 2015.

A co-financing partner Agence Francaise de Developpement (AFD) will allocate an additional $150 million.

The TA is a preparatory project that will provide the required technical and logistical resources to assist the government-led review of the 1991 Local Government Code.

The main bulk of the TA will go to international and domestic consultants accounting for half of the entire grant. The remaining amount will be used for travel expenses, hard and software, seminars and workshops, and the like.

The local government reform program aims to improve service delivery by increasing the efficiency and transparency of local governance and financial management systems.

Based on the ADB report, reducing local disparities in access to services is critical to achieving the government’s goal of inclusive growth and poverty reduction.

The poverty rate was 26.5 percent in 2009 and increasing to 27.9 percent in the first semester of 2012 above prevailing rates in neighboring countries in Southeast Asia.

Geographically, the poor remain concentrated in the southern Philippines and in rural areas. The poverty rate in the Visayas and Mindanao regions is double that in Luzon, and two-thirds of the poor live in rural areas. Similar disparities are found in terms of access to services.

It said that improvements to local public financial systems must be followed by reforms to the regulatory framework for intergovernmental fiscal relations and improvements to local governance systems. The Philippines Development Plan (PDP), 2011-2016 identifies specific challenges for local government units (LGUs) in the achievement of its main goals: promoting inclusive growth and generating employment, eliminating corruption, and achieving fiscal sustainability. The ADB said that to assist in realizing major gains in that direction, substantive changes to the existing regulatory framework for intergovernmental fiscal relations are required.