ADB to Assist Review of Philippines' Local Government Code

Reforms should help raise municipal revenues, which should in turn help local governments to improve the provision of basic services.

MANILA, PHILIPPINES – For the first time since its enactment in 1991, the Philippines’ Local Government Code will undergo a government-led, comprehensive review designed to boost municipal revenues streams for the provision of better basic services and to assist local economic development and job creation.

The review is the centerpiece of a $250 million loan approved today by the Board of Directors of the Asian Development Bank (ADB) in support of local government finance and fiscal decentralization reforms in Philippines.

“The Philippines has taken significant steps to improve the financing system of Local Government Units (LGUs) and to foster transparent and accountable local governance practices. Reforms should help raise revenues and therefore improve services,” said Juan Luis Gomez, Senior Public Management Specialist at the ADB’s Southeast Asia Department.

Despite these efforts, weak local tax bases and flaws in the design of transfers make it hard for poorer local governments to deliver the services their constituencies require. As a result, regional disparities in living standards remain wide. This could be efficiently addressed with a review of the Local Government Code.

LGUs represent close to 17% of total government expenditures and play a critical role in the provision of basic services like health, education, or housing and community development. The reforms include performance-based mechanisms such as the Performance Challenge Fund, which ties greater access to funding to performance, and the “Bottom-up-Budget,” which can improve budget transparency and alignment of national and local development priorities.

Program reforms will also continue implementation of accountability mechanisms, such as the Full Disclosure Policy or the Citizen’s Satisfaction Index. Lastly, the program supports the government’s efforts to improve local financial management systems.

The reform program will receive parallel cofinancing of $150 million from the Agence Française de Developpement.