ADB Extends Budget Reform Assistance to Philippine Local Governments

MANILA, PHILIPPINES - The Asian Development Bank (ADB) will support the Philippines' ongoing efforts to transfer responsibility for the delivery of basic services from the central government to the local government level.

The ADB's Board of Directors today approved a $225 million loan for Subprogram 2 of the Local Government Financing and Budget Reform Program, which aims to improve the efficiency and effectiveness of service delivery by expanding fiscal resources and financing options for local governments.

Since 1991, local governments have been responsible for the delivery of basic services, such as health, education and infrastructure. However, their ability to deliver these services is constrained by resource availability, financial accountability, transparency and capacity issues. The loan aims to resolve the fiscal constraints.

"Decentralization has brought choices closer to the people while opening up space for innovative responses and solutions to service delivery issues," said Tariq Niazi, Senior Public Sector Management Specialist in ADB's Southeast Asia Department. "This new program will allow local governments to enhance their capacity to plan and budget for the general welfare of their communities in a transparent and accountable way."

Subprogram 1, approved in 2007, supported efforts to improve: local financing by facilitating local government access to development credit; service delivery by fiscal transfers, own-source revenues and financing credit for those services; and governance by improving public financial management and implementing local procurement reforms.

Subprogram 2 will follow through and deepen reforms initiated under Subprogram 1. At the government's request, a post-program partnership framework is integrated into Subprogram2 to provide the basis for continued engagement with the ADB.

It will help local governments expand their fiscal resources and financing options by strengthening the policy, financing, financial and regulatory framework for decentralization as well as developing capacity. This will result in increased expenditures in key local service delivery areas such as health, education, public utilities, like water and sanitation, and road infrastructure. Since local governments are closer to their communities, these critical public services will be more attuned to the specific needs of their constituents leading to much improved welfare outcomes.

It will also ensure continuous dialogue with the Philippine government to broaden the reform in intergovernmental fiscal relations; fiscal management, planning, and public expenditure management; performance measurement and service delivery; credit financing; and local revenues.

The loan is from ADB's ordinary capital resources. It has a 15-year term, including a grace period of three years, with interest determined in accordance with ADB's LIBOR-based lending facility. Agence Francaise de Developpement is confinancing the program and will provide a loan of €150 million (or approximately $216 million).