WB worried LGUs unable to spend Mandanas funds

THE World Bank (WB) has expressed concerns about the capacity of local government units (LGUs) to spend their expanded budgets following the implementation of a Supreme Court (SC) ruling that expanded their share of the National Government’s revenue.

World Bank Economist Kevin Cruz said funds left unspent by LGUs could increase by up to P155 billion next year, equivalent to 0.7% of gross domestic product, if their project implementation capabilities are not upgraded.

“Our analysis shows that the significant expansion of LGU budgets in 2022 may result in greater underspending, unless the ability of LGUs to effectively spend the additional resources improves,” Mr. Cruz said in an online forum Thursday.

“In the midst of the country’s worst social, economic and health crisis, unspent budgets are wasted opportunities to bring crucial services to communities that need it most,” he added.

The SC’s Mandanas ruling is so called because of Batangas Governor and former Representative Hermilando I. Mandanas’s successful challenge of the government’s previous position that LGUs were entitled to a smaller share of National Government funds. The government responded to the ruling by devolving more functions to LGUs starting next year, to compensate for the lost revenue, which will now go towards the LGUs’ internal revenue allotments (IRA).

IRAs could grow 55% to 1.08 trillion in 2022, according to World Bank estimates.

Mr. Cruz said LGUs with bigger budgets may also struggle to implement the expanded projects they will be inheriting, citing their history of low budget execution rates.

“All LGUs faced difficulty in implementing capital outlay or investment projects. In particular, nearly half of the annual budget for investment projects is not spent. As a result, LGUs that allocate a greater share of their budgets for investment projects typically have a larger amount of underspent budgets,” he added.

Increasing the budget for capital outlays by 15 percentage points (ppts) will result in a decline in LGU budget execution of 15 ppts for provinces and cities and 24 ppts for municipalities, he said.

Mr. Cruz said poor budget usage may be due to limited implementation capacity, weak planning, underdeveloped competencies in public financial management, shortage of human resources and process bottlenecks in processes, such as in procurement.

Meanwhile, inequality of fiscal allocations among LGUs will likely persist despite the increased budgets, he said, because the Mandanas ruling does not address the distribution formula between rich and poor LGUs.

He said the proposed Growth Equity Fund, which pools resources to provide financial aid to poorer and disadvantaged LGUs, can help address inequality.

“The National Government should pursue the equalization fund until this handicapped municipalities flourish in terms of development. But there is a caveat here: there should be mechanism to monitor programs in real time to actualize accountability,” said Cynthia Falcotelo Fortes, secretary general at League of Municipalities of the Philippines and also the mayor of Barcelona, Sorsogon, speaking at the same forum.

To ensure a smooth transition next year, the World Bank’s Mr. Cruz said LGUs should focus on funding programs and projects that are ready for implementation.

It is also crucial that the National Government and LGUs define roles and communicate clearly on the devolution.

“In the long term, the government may consider amendments to the Local Government Code. This includes strengthening the ability of LGUs to generate revenue and clarifying the assignment of service delivery responsibilities among the different levels of government to avoid overlaps,” he added.

The Department of the Interior and Local Government’s director for local government development, Anna Liza F. Bonagua, said the department expects LGUs to be more “progressive, self-reliant, transparent, (and) accountable” next year while delivering programs effectively.

Ms. Bonagua said the guidance and continued support of the National Government to LGUs will also play a key role in the effective implementation of the Mandanas ruling. — Beatrice M. Laforga