New finance circular may discourage LGUs from borrowing

MANILA, Philippines – As part of the Aquino administration’s fiscal discipline efforts, the Finance Department has issued a circular that could discourage local government units (LGUs) from jacking up their debts.

The agency’s Bureau of Local Government Finance (BLGF) issued in April Circular 1-2012, which requires additional documents from LGUs seeking authority to borrow money from banks and other financial institutions.

These documents include a letter-request from the LGU chief executive indicating the purpose and terms of a loan and the lending institution that will extend it; a certification of absence or existence of loans; and a certification by an accountant that the LGU has not defaulted in payments of an existing loan, when applicable.

The circular is also requiring the LGU to submit certification from the secretary of the Sanggunian or the local legislative body that the proposed project to be financed by the loan is included in the Approved Annual Investment Plan for the current year.

Moreover, the LGU must submit an authenticated copy of the resolution authorizing the local chief executive to negotiate and contract a loan on behalf of the government.

“We need to make sure that LGUs do not abuse their right to borrow to the detriment of their constituents,” Finance Secretary Cesar Purisima said.

Circular 1-2012 supersedes a circular on loans signed by the Department of Finance in January 2000.

Requirements under the old circular were not as detailed and stringent as the new one. They included only a statement of actual income and expenditures, certification of existing loans, annual audit report, and certifications of internal revenue allotment received and taxable assessed value of real property assets for the past 3 years.

“We have made significant reforms, one of them the directive to revise assessed real property values in order to allow LGUs to raise more revenues. The idea is that you spend only as much as you earn,” Purisima noted. – Rappler.com