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Mr. Roberto B. Tan Assistant Secretary, Department of Finance Republic of the Philippines

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

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Mr. Roberto B. Tan Assistant Secretary, Department of Finance Republic of the Philippines

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  1. Global Trends in Financing Sub-National Government andPara-Statal Entities:The Philippine Experience Mr. Roberto B. Tan Assistant Secretary, Department of Finance Republic of the Philippines

  2. OverviewThe Local Government Code of 1991 • Local Autonomy • Decentralization and Devolution • Participation in Governance and Development

  3. The LGU ExperienceImplementing the Local Government Code • Financial Constraints • Underdeveloped Technical Capability

  4. The LGU ExperienceFinancial Constraints • Insufficient local revenue generation • Limited credit financing

  5. The LGU ExperienceAlternative Financing Sources • NG & GFI Credit :Majority of LGUs • NG Grants :Lower income LGUs • BOT : Limited number of LGUs • Bond Float : Around 8 richer LGUs

  6. 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

  7. MDFO/other Grants + TA MDFO Credit +TA GFIs/BOTs Private Sources of Credit (Bonds, BOTs) Fully Credit- worthy LGUs (14) Creditworthy LGUs but unable to tap market (945) Marginally Creditworthy LGUs (726) Not Credit- worthy LGUs Financially Weakest Financially Strongest LGU Income Class 6th Class 1st Class National Government Policy LGU Financing Framework

  8. 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

  9. The Role and Evolution of the Municipal Development Fund Office The Municipal Development Fund - M D F -

  10. 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

  11. The Role and Evolution of the Municipal Development Fund Office The Municipal Development Fund Office - M D F O -

  12. 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

  13. Development Role of the MDFO • Long term credit to LGUS • Grant financing to LGUs • LGU track record • LGU creditworthiness

  14. 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

  15. 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)

  16. Assistance Provided by the MDFO to LGUs • Technical Assistance and Capability Building • - Local revenue generation • - Fiscal discipline • - Track record • - Creditworthiness

  17. MDFO LGU Re-lending Profile By LGU Income Class

  18. MDFO LGU Re-lending Profile By Subproject Type

  19. MDFO Credit Collection Profile • Voluntary LGU Payments : 93% • Payment by IRA Intercept : 7% • Total Collection Efficiency : 100%

  20. The Role and Evolution of the Municipal Development Fund Office The Municipal Finance Corporation - M F C -

  21. 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)

  22. 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

  23. 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

  24. Basic Functions of the MFC • Undertake special loan or credit programs for LGUs • Wholesale lending • Retail Lending

  25. 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

  26. 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

  27. 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

  28. Thank you.

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