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MANILA, PHILIPPINES - Japan and the Asian Development Bank (ADB) are providing $300.8 million to improve the revenue generation capacity of local government units in the Philippines to help them deliver better basic services to their communities.

The Local Government Financing and Budget Reform Program Cluster consists of two subprograms, with the first receiving a $300 million loan from the ADB. The second subprogram will be submitted for consideration to the ADB Board 36 months after the first subprogram takes effect.

The Japan Special Fund will provide an $800,000 grant for the technical assistance component of the program, which has an estimated total cost of $1.1 million. The technical assistance will support the development and implementation of a medium-term agenda in local government financing and governance and provide the government policy advice.

“The program supports the Philippines in its efforts to help local government units improve their capacity to plan and budget for the general welfare of their communities in a transparent way,” said Tariq Niazi, Public Sector Management Specialist of ADB’s Southeast Asia Department. “It contributes to increased efficiency and effectiveness in the delivery of basic public services by increasing resources and funding options for local government units.”

The Local Government Code of the Philippines, which was signed into law in 1991, transferred the main responsibility for the delivery of basic services such as health, education and infrastructure to local government units.

Local government units, however, continue to face difficulties in fulfilling their mandate. Thus, the country needs to ensure that stable mechanisms are in place to channel adequate resources to local governments. Financial accountability, transparency and capacity also pose challenges to local governments. Improvements are needed in service delivery, governance and performance measurement.

The program will work towards better flow of resources that local government units are entitled to and assist in other means of raising revenue through public and private sources. The program will also help improve the capacity of local government units in planning, managing spending and procurement. It will also strengthen monitoring systems by making the financial and service delivery performance of local government units more transparent.

The Philippines experienced robust economic performance in 2006 and 2007. Gross domestic product rose 5.4% in 2006 from the 4.3% annual average growth from 1990-2005. The medium-term outlook remains positive, with the growth this year expected to meet the higher end of the target of 6.3-7.3% led by consumption, exports and a recovery in investments. Higher growth is required to address the goals of poverty reduction and achieve the Millennium Development Goals, which serve as the blueprint for countries and development institutions in reducing poverty and improving lives.

“The Philippines appears on track to achieve several Millennium Development Goals targets but it is behind in health, education and environment because of tighter spending by the government to reduce the budget deficit,” said Mr. Niazi. “Reforms need to be more widely implemented at the level of local government units, since they support the development process and are important in pursuing sustained growth and reducing poverty.”

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