Transcript Global Trends in Financing Sub

Global Trends in Financing
Sub-National Government and
Para-Statal Entities:
The Philippine Experience
Mr. Roberto B. Tan
Assistant Secretary, Department of Finance
Republic of the Philippines
Overview
The Local Government Code of 1991

Local Autonomy

Decentralization and Devolution

Participation in Governance and
Development
The LGU Experience
Implementing the Local Government Code


Financial Constraints
Underdeveloped Technical
Capability
The LGU Experience
Financial Constraints


Insufficient local revenue
generation
Limited credit financing
The LGU Experience
Alternative Financing Sources

NG & GFI Credit : Majority of LGUs

NG Grants :

BOT :

Bond Float :
Lower income LGUs
Limited number of LGUs
Around 8 richer LGUs
National Government Policy
LGU Financing Framework

Higher Income Class LGUs
- Commercial Credit Sources

Medium Income Class LGUs
- NG Credit + Grants

Lower Income Class LGUs
- NG Grants + Technical Assistance
National Government Policy
LGU Financing Framework
MDFO/other
Grants + TA
MDFO Credit
+TA
GFIs/BOTs
Private Sources of Credit
(Bonds, BOTs)
Fully Creditworthy LGUs
(14)
Creditworthy
LGUs but unable
to tap market
(945)
Marginally
Creditworthy LGUs
(726)
Not Creditworthy LGUs
Financially
Weakest
6th Class
LGU Income Class
Financially
Strongest
1st Class
ICC Approved NG-LG
Cost Sharing Arrangement

Effective January 2003

Maximum grant: 50% of project cost


Equitable grant allocation per LGU
income class and subproject type
Minimum cash equity: 10% of
project cost
The Role and Evolution of the
Municipal Development Fund Office
The Municipal
Development Fund
-MDF-
The Municipal Development Fund

Created by PD 1914

Special Revolving Fund

ODA and second generation funds


Under the Bureau of Local
Government Finance
Available to LGUs
The Role and Evolution of the
Municipal Development Fund Office
The Municipal
Development Fund Office
-MDFO-
The Municipal Development Fund Office

PHASE 1:
- E.O. 41 created the MDFO
- Transferred MDF to MDFO

PHASE 2:
- Transfer MDFO operations to a GFI
Development Role of the MDFO

Long term credit to LGUS

Grant financing to LGUs

LGU track record

LGU creditworthiness
Major Functions and Responsibilities
of the MDFO
MDFO
Fund Conduit of
Foreign-Assisted
Projects
Implementing Agency
of CBRM Project and
the LOGOFIND Project
Administers the
MDF Program
Lending Facility
Assistance Provided by the MDFO to LGUs
• Financial & Technical Assistance
- Community Based Resource
Management Project (WB)
- Local Government Finance and
Development Project (WB)
- Program Lending Facility (MDF)
Assistance Provided by the MDFO to LGUs
• Technical Assistance and Capability
Building
- Local revenue generation
- Fiscal discipline
- Track record
- Creditworthiness
MDFO LGU Re-lending Profile
By LGU Income Class
Class 1 and 2
Class 5 and 6
Class 3 and 4
MDFO LGU Re-lending Profile
By Subproject Type
Health
Facilities
Educational
Facilities
Environmental
Infrastructures
Basic
Infrastrure
Facilities
MDFO Credit Collection Profile
Voluntary LGU Payments :
Payment by IRA Intercept :
93%
7%
Total Collection Efficiency : 100%
The Role and Evolution of the
Municipal Development Fund Office
The Municipal
Finance Corporation
-MFC-
The Municipal Finance Corporation

EO 252 : 1 December 2003

Transfer to the MFC of:
- All multilateral and bilateral loans
for LGU re-lending
- All MDFO assets + MDF (Cash+Near
Cash: P4B, Receivables: P2B)
Rationale for Establishment of the MFC



Critical developmental role of
MDFO in LGU credit market
MDFO as major channel of ODA
funds to LGUs
MDFO performance limited by
budget constraints and insufficient
personnel
General Thrusts of the MFC

Establish market friendly credit
mechanism
- Facilitate access and graduation of
LGUs to commercial credit sources

Leverage ODA & Public Funds
- Create competitive LGU financing system

Develop the credit market for LGU
bonds and other securities
Basic Functions of the MFC

Undertake special loan or credit
programs for LGUs

Wholesale lending

Retail Lending
Basic Functions of the MFC

Undertake related financial actions:
- Pooling of LGU bonds
- Securitization to raise funds for
on-lending to LGUs

Channel NG grants to LGUs
Basic Structure of the MFC
• Affiliate of the Land Bank of the
Philippines
• Board of Directors:
DOF Secretary
Chairperson
DILG Secretary
Vice-Chairperson
NEDA Secretary
Member
DBM Secretary
Member
LBP President
Member
MFC President
Member
LGU Representative
Member
Status of MFC Establishment
• EO 252 : 1 December 2003
• Articles of Incorporation & By-Laws:
25 June 2004
• SEC Registration: 25 June 2004
• Ongoing Activities:
- Development of organizational structure,
business plan and systems development
Thank you.