department of finance bureau of local government...
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D E PA R T M E N T O F F I N A N C E
BUREAU OF LOCAL GOVERNMENT FINANCE
Certifying the Net Debt Service Ceiling and Borrowing Capacity of Local Government Units
31 March 2017 | DBP Training Complex, Baguio City
• Attached agency of the DOF
• Supports the DOF in its mandate to
“supervise the revenue operations of all
local government units”
The Bureau of Local Government Finance
• Central Office in Manila, with 15 Regional Offices
• Mandated to “develop and promote plans and
programs for the improvement of resource management
systems, collection enforcement mechanisms and credit
utilization schemes at the local levels”
• Issues Certificate of Net Debt Service Ceiling (NDSC)
and Borrowing Capacity (BC) to LGUs
• Sec. 296 of LGC: Basic policy that LGUs
may create indebtedness and avail of credit
facilities
• Art. 403 of LGC IRR: DOF is mandated to
render technical assistance to any LGU in the availment
of credit facilities, flotation of bonds, contracting of loans
and issue guidelines for the purpose
• Sec. 324 of LGC: Appropriations of 20% of the LGU’s
regular income for debt servicing
• Government regulates through ex ante controls:
1. Securing the Certificate of Net Debt Service Ceiling
and Net Borrowing Capacity from the BLGF
2. Favorable Monetary Board opinion from the BSP
Legal Basis of Certification
• Local Finance Circular (LFC) No. 1-2000, dated 19January 2000: issued to enhance the access of allLGUs to credits and other forms of indebtedness.
• LFC No. 01-2012: Amended the previous LFC, andreleased on 16 April 2012, to ensure a more accurateand appropriate evaluation of the maximum borrowingand debt servicing capacities of all LGUs.
• LFC No. 01-2014: Issued on April 22, 2014 for 171LGUs affected by Typhoon Yolanda, from 12 to 4requirements, and extending the validity by 1 year
DOF Policies on LGU Loan Certification
DOF Department OrderNo. 54-2016 dated 25October 2016:
• Streamlining the Certification of Net Debt Service Ceiling and Borrowing Capacity of LGUs
• From 12 to 4 documentary requirements
• Defined parameters in computation
• Improved process/ faster certification
Latest DOF Policy on LGU Loan Certification
LGU Loan Application Process
Evaluate LGU request
and supporting
documentary
requirements
Local Government Unit (LGU) Lending Institution Bureau of Local Government Finance (BLGF) Bangko Sentral ng Pilipinas
Submit Letter of Intent and negotiate
with the lending institution
Submit to BLGF a written request for
certification of LGU Net Debt Service
Ceiling and Borrowing Capacity, with
complete supporting documents pursuant
to DOF Department Order 054.2016
Local Council, through a
Resolution/Ordinance,
authorizes the Local Chief
Executive to negotiate and
contract loans and other
forms of indebtedness
Pre-Evaluation/Setting of
Terms and ConditionsBLGF-RO BLGF-CO
Documents
Complete/
Compliant?
Submit the required
additional documents
No
Yes
Evaluate financial reports
of the LGU
Compute preliminarily
LGU Net Debt Service
Ceiling and Borrowing
Capacity (NDSCBC)
Re-negotiate with the lending
institution for lower interest
rate, longer tenor, or consider
other lending institutions, then
re-submit to BLGF
Proposed Loan
Higher than BLGF
Certification?
Yes
No
Submit to BSP a written request for
Monetary Board Opinion
Submit to BLGF-CO all documentary
requirements and the preliminary
computation for the issuance of
certificate of NDSCBC
Final computation and
issuance of certificate
of NDSCBC
Evaluate LGU request
and supporting
documentary
requirements
Monetary Board renders
Opinion on the Monetary
Balance and Payments
implications of the proposed
LGU borrowing, per BSP
Circular No.926 s. 2016
Submit to the Lending Institutions
the BLGF Certification, MB Opinion
and Other Requirements
Approval and Signing of
Loan Agreement with the
LGU
Release of Loan
Record receipt of Loan Proceeds
and prepare borrowing reports for
submission to BLGF-RO and BSP
Receive LGU Post Borrowing
ReportReceive LGU Post Borrowing
Report
1. Letter request from the Local Chief Executive indicating:
- The lending institution where to apply for a loan;
- Terms and condition of the proposed loan; and
- The purpose of the loan.
2. Certification of existing of loan/s duly certified by the
Local Treasurer with the following details:
• Types of loans & other obligations contracted;
• Purpose of the loans & other obligations contracted;
• Name of the lending institutions;
• Date of approval & maturity;
• Terms & conditions (interest rate & number of years to pay);
• Remaining balances of loans and other obligations; and
• Annual amortization schedules (segregating the principal from the
interest) issued by the lending institution.
Streamlined Documentary Requirements for Certification
3. COA Annual Audit Certificate for the past 3 fiscal yearsshowing no adverse finding against the LGU, which is supported by the
following year-end financial reports:
• Pre-closing trial balance (general fund);
• Detailed Statement of Financial Performance
4. Certification issued by the lending institution stating
that it shall not require LGU deposits as compensating
balance for the loan if such lending institution is not (1) not an
authorized government depository bank or (2) an authorized government
bank required to obtain the prior approval of the Department of Finance as
provided under the DOF Department Order No. 27-05 (Banks other than
LBP, DBP and MDFO);
Streamlined Documentary Requirements for Certification
1. Letter request from the Local Chief Executive indicating:
- The lending institution where to apply for a loan;
- Terms and condition of the proposed loan; and
- The purpose of the loan.
2. Certification of existing of loan/s by the Local Treasurer
• Types of loans & other obligations contracted;
• Purpose of the loans & other obligations contracted;
• Name of the lending institutions;
• Date of approval & maturity;
• Terms & conditions (interest rate & number of years to pay);
• Remaining balances of loans and other obligations; and
• Annual amortization schedules (segregating the principal from the
interest) issued by the lending institution.
3. Certified true copy of declaration of state of calamity.
Streamlined Documentary Requirements for Certification
LGUs affected by Natural and/or Man Made Disastervalid for one (1) year
• Certifies the amounts pertaining to:
• Net Debt Service Ceiling (NDSC)
• Borrowing Capacity (BC)
• Terms of the loan (period, interest, grace period, etc.)
• Name of lending institution
• Purpose of the loan
• Certificate number and date issued
• Notes on the certificate
Features of the Certificate
Features of the Certificate
Features of the Certificate
• Debt Service Ceiling (DSC)
• 20% x Annual Regular Income (ARI)
• Where ARI is the average previous 3-year locally
sourced income + other shares from national taxes
based on COA data, + actual annual IRA based on
DBM data
• Net DSC (NDSC)
• DSC – All amortizations payable during the year
• Borrowing Capacity (BC)
• NDSC x Annuity Factor
Computing the NDSC and BC
0.14%0.15%
0.11%
0.07%
0.09%
0.07%
0.10%
0.00%
0.02%
0.04%
0.06%
0.08%
0.10%
0.12%
0.14%
0.16%
2009 2010 2011 2012 2013 2014 2015
1. Ratio of LGU Loans and Borrowings to GDP: Fiscal Year 2009 to 2015
3.43%
3.77%
2.80%
2.07%
2.61%
1.91%
2.39%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2009 2010 2011 2012 2013 2014 2015
3. Ratio of Loans and Borrowings to Total Revenue: Fiscal Years 2009 to 2015
0.72%0.76%
0.72%0.66%
0.61%
0.54%0.57%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
2009 2010 2011 2012 2013 2014 2015
2. Ratio of LGUs Outstanding Loans to GDP: Fiscal Years 2009 to 2015
4.67%
4.14%
4.54%4.45% 4.42%
4.55%
3.97%
3.60%
3.80%
4.00%
4.20%
4.40%
4.60%
4.80%
2009 2010 2011 2012 2013 2014 2015
4. Ratio of Debt Service to Total Expenditures: Fiscal Years 2009 to 2015
Low level of LGU borrowings
Some insights…
4.7%
4.1%4.4% 4.4% 4.3% 4.2%
3.5%
4.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
2009 2010 2011 2012 2013 2014 2015 Average
Debt Service levels of LGUs generally always below the 20% statutory limit
Some insights…
3111
32 26 14
29
27
51 55
25
212
114
293317
128
7
5
8
15
10
0
50
100
150
200
250
300
350
400
450
2012 2013 2014 2015 2016
Number of Issued Certificates of NDSC and BC to LGUs according to LGU Type
FYs 2012 to 2016
Province City Municipality Barangay
Some insights…
229
127
353 377
169
50
30
3136
8
0
50
100
150
200
250
300
350
400
450
2012 2013 2014 2015 2016
Number of Issued Certificates of NDSC and NBC to LGUs according to Financial Institution
Fiscal Years 2012 to 2016
GFI PFI
• PERFORMANCE MEASURE-Issuance of
Creditworthiness Rating Index
• EXCHANGE-Improve information sharing
with major stakeholders
Areas for Improvement
THANK YOU
visit www.blgf.gov.ph