Completion Report

Program Number: 39516

Loan Numbers: 2387, 2584
January 2013

Philippines: Local Government Financing and Budget

Reform Program Cluster
 CURRENCY EQUIVALENTS

Currency Unit – peso (P)

Subprogram 1
At Appraisal At Program Completion
(30 October 2007) (09 April 2008)
P1.00 = $0.027 $0.024
$1.00 = P44.02 P41.40
¥1.00 = $0.008 $0.010
$1.00 = ¥114.177 ¥102.655

Subprogram 2
At Appraisal At Program Completion
(6 October 2009) (31 March 2010)
P1.00 = $0.021 $0.022
$1.00 = P46.61 P45.14

ABBREVIATIONS

ADB – Asian Development Bank

AFD – Agence Française de Développement
APIS – annual poverty indicator survey
BIR – Bureau of Internal Revenue
BLGF – Bureau of Local Government Finance
CCD – Coordination Committee on Decentralization
CLUP – comprehensive land use planning
DBM – Department of Budget and Management
DENR – Department of Environment and Natural Resources
DILG – Department of Interior and Local Government
DMF – design and monitoring framework
DOF – Department of Finance
FIES – family income and expenditure survey
GDP – gross domestic product
GFC – global financial crisis
GFI – government financial institution
GPRA – Government Procurement Reform Act
HUC – highly urbanized cities
IRA – internal revenue allotment
LGC – local government code
LGFBR – Local Government Financing and Budget Reform
LGFPMS – local government financial performance management system
LGPMS – local government performance management system
LGU – local government unit
MDFO – Municipal Development Fund Office
MDG – Millennium Development Goal
MPI – multidimensional poverty index
MTPDP – Medium-Term Philippine Development Plan
NDHS – national demographic and health survey
NEDA – National Economic and Development Authority
 NGA – national government agency
ODA – official development assistance
PDAF – Priority Development Assistance Fund
PDF – Philippines Development Forum
PFM – public financial management
PROLEND – program lending facility
SIE – statement of income and expenditures
SRE – statement of receipts and expenditures
TA – technical assistance

NOTES

(i) The fiscal year (FY) of the Government and its agencies ends on 31 December.

(ii) In this report, "$" refers to US dollars.

Vice President S. Groff, Operations 2

Director General K. Senga, Southeast Asia Department (SERD)
Director S. Hattori, Public Management, Financial Sector, and Trade Division, SERD

Team leader J.L. Gomez Reino, Senior Public Management Specialist, SERD
Team members R. Anglingkusumo, Financial Sector Economist, SERD
R. Aquino, Associate Project Analyst, SERD
K.M. Sanchez, Operations Assistant, SERD
R. Ramilla-Siquijor, Operations Assistant, SERD
S. Tukuafu, Principal Financial Sector Specialist, SERD

In preparing any country program or strategy, financing any project, or by making any designation
of or reference to a particular territory or geographic area in this document, the Asian
Development Bank does not intend to make any judgments as to the legal or other status of any
territory or area.
 CONTENTS

Page
BASIC DATA
I. PROGRAM DESCRIPTION 1
II. EVALUATION OF DESIGN AND IMPLEMENTATION 2
A. Relevance of Design and Formulation 2
B. Program Outputs 3
C. Program Costs and Disbursements 8
D. Program Schedule 8
E. Implementation Arrangements 8
F. Conditions and Covenants 8
G. Related Technical Assistance 8
H. Consultant Recruitment and Procurement 10
I. Performance of the Borrower and the Executing Agency 10
J. Performance of the Asian Development Bank 10
III. EVALUATION OF PERFORMANCE 11
A. Relevance 11
B. Effectiveness in Achieving Outcome 11
C. Efficiency in Achieving Outcome and Outputs 13
D. Preliminary Assessment of Sustainability 13
E. Impact 13
IV. OVERALL ASSESSMENT AND RECOMMENDATIONS 14
A. Overall Assessment 14
B. Lessons Learned 15
C. Recommendations 15

APPENDIXES
1. Design and Monitoring Framework 16
2. Performance of Local Government Financing and Budget Reform Program,
Subprogram 1 – Triggers 19
3. Performance of Local Government Financing and Budget Reform Program, 22
Subprogram 2 – Triggers
4. Status of Compliance with Loan Covenants 24
5. Post-LGFBR Program Monitoring Framework 27
6. Project Completion Report: Government Survey Results 28
 i

BASIC DATA: LOCAL GOVERNMENT FINANCING AND BUDGET REFORM PROGRAM

CLUSTER, SUBPROGRAM 1

A. Loan Identification
1. Country Philippines
2. Loan Number 2387
3. Program Title Local Government Financing and Budget
Reform Program (Subprogram 1)
4. Borrower Republic of the Philippines
5. Executing Agency Department of Finance (DOF)
6. Amount of Loan ¥34,253,100,000 equiv $300,000,000
7. Program Completion Report Number 1382

B. Loan Data
1. Fact-finding
– Date Started 15 May 2007
– Date Completed 6 June 2007
2. Appraisal
– Date Started 10 July 2007
– Date Completed 27 July 2007

3. Loan Negotiations
– Date Started 11 December 2007
– Date Completed 11 December 2007

4. Date of Board Approval 13 December 2007

5. Date of Loan Agreement 22 February 2008

6. Date of Loan Effectiveness

– In Loan Agreement 7 April 2008
– Actual 7 April 2008
– Number of Extensions -

7. Closing Date
– In Loan Agreement 31 Mar 2008
– Actual 9 April 2008
– Number of Extensions 1

8. Terms of Loan
– Interest Rate LIBOR-based lending rate
– Maturity (number of years) 15 years
– Grace Period (number of years) 3 years

9. Terms of Relending (if any)

– Interest Rate Not Applicable
– Maturity (number of years) Not Applicable
– Grace Period (number of years) Not Applicable
– Second-Step Borrower Not Applicable
 ii

10. Disbursements
a. Dates
Initial Disbursement Final Disbursement Time Interval
09 April 2008 09 April 2008 -
Effective Date Original Closing Date Time Interval
07 April 2008 31 March 2008 -

b. Amount
Category Last Net Amount
or Original Revised Amount Available Amount Undisbursed
Subloan Allocation Allocation Canceled Disbursed Balance
Local ¥34,253 None - ¥34,253 ¥34,253 -
Government
Financing
million million million
and Budget
Reform
Program

USD $300 million - $300 million $337.552 -

Equivalent million

11. Local Costs (Financed)

- Amount ($) None
- Percent of Local Costs None
- Percent of Total Cost None

C. Program Data

1. Program Cost

1
Cost Appraisal Estimate Actual

Foreign Exchange Cost $300,000,000 $337,552,086

Total

2. Financing Plan
Cost Appraisal Estimate Actual
Implementation Costs
ADB-Financed
Single Tranche $300,000,000 $337,552,086
Total $300,000,000 $337,552,086

ADB = Asian Development Bank

1
US$ equivalent of the actual loan disbursements of ¥34,253,100,000.
 iii

3. Cost Breakdown by Program Component

Component Appraisal Estimate Actual
Single Tranche $300,000,000 $337,552,086

4. Program Schedule
Item Appraisal Estimate Actual
Other Milestones
Single Tranche $300,000,000 $337,552,086
Total $300,000,000 $337,552,086

5. Program Performance Report Ratings

Ratings
Development Implementation
Implementation Period Objectives Progress
07 Apr 2008–30 Apr 2008 S S

S = satisfactory.

D. Data on Asian Development Bank Missions

No. of No. of Specialization
a
Name of Mission Date Persons Person-Days of Members
Fact-Finding 15 May–06 June 2007 05 80 a, b, c, d, e
Appraisal 10–27 July 2007 04 72 a, b, c, f
a
a – public sector management specialist , b – country specialist, c – senior capacity development specialist,
d – social security specialist, e – financial management specialist, f – staff consultant.
iv

BASIC DATA: LOCAL GOVERNMENT FINANCING AND BUDGET REFORM PROGRAM

CLUSTER, SUBPROGRAM 2
A. Loan Identification
1. Country Philippines
2. Loan Number 2584
3. Program Title Local Government Financing and Budget Reform
Program (Subprogram 2)
4. Borrower Republic of the Philippines
5. Executing Agency Department of Finance (DOF)
6. Amount of Loan $225 million
7. Program Completion Report Number 1382

B. Loan Data
1. Fact finding
– Date Started 01 June 2009
– Date Completed 16 June 2009

2. Appraisal
– Date Started 27 July 2009
– Date Completed 5 August 2009

3. Loan Negotiations
– Date Started 03 September 2009
– Date Completed 03 September 2009

4. Date of Board Approval 26 November 2009

5. Date of Loan Agreement 08 December 2009

6. Date of Loan Effectiveness

– In Loan Agreement 28 December 2009

– Actual 28 December 2009

– Number of Extensions -

7. Closing Date
– In Loan Agreement 31 March 2010
– Actual 31 March 2010
– Number of Extensions -

8. Terms of Loan
– Interest Rate LIBOR-based lending rate
– Maturity (number of years) 15 years
– Grace Period (number of years) 3 years

9. Terms of Relending (if any) NA

10. Disbursements
a. Dates
Initial Disbursement Final Disbursement Time Interval
29 December 2009 29 December 2009 0
Effective Date Original Closing Date Time Interval
29 December 2009 29 December 2009 0
 v

b. Amount
Category Last
Original Amount Net Amount Amount Undisbursed
or Revised
Allocation Canceled Available Disbursed Balance
Subloan Allocation
1 $225 million None - $225 million $225 million

Total $225 million - $225 million $225 million

11. Local Costs (Financed)

- Amount ($) None
- Percent of Local Costs None
- Percent of Total Cost None

C. Program Data

1. Program Cost
Cost Appraisal Estimate Actual

Foreign Exchange Cost $441,000,000 $441,000,000

Total $441,000,000 $441,000,000

2. Financing Plan
Cost Appraisal Estimate Actual
Implementation Costs
ADB-Financed
Single Tranche $225,000,000 $225,000,000
AFD-Financed $216,000,000 $216,000,000
Total $441,000,000 $441,000,000
ADB = Asian Development Bank

3. Cost Breakdown by Program Component

Component Appraisal Estimate Actual
ADB-Financed (Single Tranche) $225,000,000 $225,000,000
AFD-Financed $216,000,000 $216,000,000
Total $441,000,000 $441,000,000

4. Program Schedule
Item Appraisal Estimate Actual
Other Milestones
ADB-Financed (Single Tranche) $225,000,000 $225,000,000
AFD-Financed $216,000,000 $216,000,000
Total $441,000,000 $441,000,000
vi

5. Program Performance Report Ratings

Ratings
Implementation Period Development Implementation
Objectives Progress
28 Dec 2009–31 Dec 2009 S S
01 Jan 2010–31 Mar 2010 S S

HS = highly satisfactory, S = satisfactory.

D. Data on Asian Development Bank Missions

No. of No. of Specialization
Name of Mission Date a
Persons Person-Days of Members
Fact-Finding 1–16 June 2009 4 64 a, b, c, f
Appraisal 27 July –5 Aug 2009 4 40 a, b, c, f
a
a – public sector management specialist , b – country specialist, c – senior capacity development specialist,
d – social security specialist, e – financial management specialist, f – staff consultant.
 I. PROGRAM DESCRIPTION

1. Background. In the mid 2000s, under the umbrella of the Medium-Term Philippine
Development Plan (MTPDP) 2004–2010, the Government of the Philippines initiated a wide-
ranging and comprehensive program of reforms to address the long-standing problems of
poverty and unemployment, and achieve the Millennium Development Goals (MDGs).1 The
Philippines Development Forum (PDF)2 in 2007 reiterated the government‟s commitment to
poverty reduction, through nurturing local growth, fostering local economic development, and
promoting better service delivery by local governments. More specifically, the government
sought to strengthen poverty reduction efforts by continuing with its reforms in fiscal
management and service delivery by local government units (LGUs) .3

2. Local government reform in the Philippines had started a decade and a half earlier with the
enactment of the Local Government Code (LGC) in 1991. The LGC provided a comprehensive
framework for local autonomy and decentralization. It re-assigned various service delivery
responsibilities from the national government to LGUs and expanded the scope of local
government taxing powers. As a result, the LGC opened up new sources of development
financing, and stressed the key role played by LGUs in local development dynamics. The Local
Government Financing and Budget Reform (LGFBR) program cluster has been an integral part
of local government reforms. Prior to the LGFBR program, local government reforms had
produced a number of well-performing LGUs. Yet, there was also considerable scope for
improving the ability of LGUs to be more responsive to local development challenges. Areas
that were perceived as reform priorities included (i) clearer and more streamlined expenditure
assignments between national government agencies (NGAs) and LGUs, (ii) wider alternatives
for LGUs‟ resource mobilization, (iii) increased capacity of LGUs in tax administration,
budgeting, and financial management, (iv) better structures, procedures, and information
systems for NGAs to exercise their oversight roles in LGUs‟ activities, and (v) a stronger legal
and institutional framework for decentralization.

3. The need to enhance the pace of local government reform increased in 2008–2009, on the
back of the global financial crisis (GFC). Hit by reduced access to capital markets, decreased
remittances, and weakened global demand for exports, GDP growth slowed sharply and poverty
reduction came to a halt. The deteriorating external environment and its impact on the domestic
economy brought to the forefront the critical role that LGUs could play in cushioning the impact
of the GFC, stimulating domestic demand, and sustaining the government‟s economic
development agenda. It was envisaged that the effectiveness of the fiscal stimulus package in
supporting growth and sustaining poverty reduction could be enhanced by strengthening the
effectiveness and efficiency of LGUs in planning, funding, and delivering key government
services at the local level.

4. Program’s impact, outcome, and outputs. The LGFBR program cluster was expected to
increase the efficiency and effectiveness of LGUs in delivering basic public services to their
constituent communities. To bring about this expected impact, the program cluster‟s outcome

1
Government of the Republic of the Philippines, National Economic Development Authority. 2004. Medium-Term
Philippines Development Plan (MTPDP) 2004–2010. Manila.
2
The Philippines Development Forum or PDF is the primary mechanism of the Government for facilitating
substantive policy dialogue among stakeholders on the country‟s development agenda. Co-chaired by the
Government (Department of Finance) and the World Bank, comprises representatives from development partners,
civil society, academia, private sector, and the legislature.
3
LGUs comprise highly urbanized cities, independent component cities, provinces, component cities, municipalities,
and barangays (villages).
2

was the enhanced resources and capacities of LGUs to plan and budget for the general welfare
of their constituent communities in a transparent and accountable way.

5. The scope of the program included reforms to (i) improve the release of LGU shares in
national government revenues; (ii) implement a financial reporting system; (iii) improve the local
government performance measurement system; (iv) facilitate access of LGUs to development
credit financing; and (v) improve the collection of local business and real property taxes. The
Design and Monitoring Framework (DMF) of the LGFBR program is presented in Appendix 1.
Policy measures undertaken under subprogram 1 and 2 are presented in Appendix 2 and 3,
respectively.

6. Financing and cofinancing. The program cluster comprised two single tranche loans (or
subprograms) from 2006 to 2010. Each subprogram was funded from the ordinary capital
resources of the Asian Development Bank (ADB). Subprogram 1 ($300 million) was approved
by ADB‟s Board on 26 December 2007, and subprogram 2 ($225 million) on 26 November
2009. Agence Française de Developpement (AFD) provided an additional $216 million
equivalent for subprogram 2 through a collaborative cofinancing arrangement. Subprogram 1
(2006–2008) was implemented with a well-defined, medium-term framework specified at the
outset, including reforms prior to Board consideration.4 Subprogram 2 (2009–2010) was
implemented based on the medium-term framework specified under subprogram 1, with
adequate room for flexibility in the program‟s design to accommodate the progress made under
subprogram 1 and changes in the external environment resulting from the GFC.5

II. EVALUATION OF DESIGN AND IMPLEMENTATION

A. Relevance of Design and Formulation

7. The design of the LGFBR program was highly relevant. The program was aligned with the
government‟s reform agenda, as conceived in the MTPDP, to reduce poverty by emphasizing
the effectiveness and efficiency of local governments in delivering basic public services.
Through the government-led PDF, ADB and the government jointly defined the policy measures
implemented under the LGFBR.6 The program cluster consolidated key fiscal, expenditure,
budget, and planning reforms in local governance under five key policy areas (described in
subsection II.B below). The program also pursued capacity building initiatives, coordination
among oversight agencies, and transparency in local fiscal governance.

8. The LGFBR program was also aligned with a core element of ADB‟s country strategy and
program 2005–2007 for the Philippines, and it was the first policy program that addressed major
policy issues surrounding local governance.7 Complementing the broader policy support
provided by the Development Policy Support Program, the LGFBR program was central to

4
ADB. 2007. Report and Recommendation of the President to the Board of Directors: Proposed Program Loan and
Technical Assistant Grant to the Republic of Philippines: Local Government Financing and Budget Reform Program
Cluster (Subprogram 1). Manila (Loan 2387-PHI).
5
ADB. 2009. Report and Recommendation of the President to the Board of Directors: Proposed Program Loan to
the Republic of Philippines for Subprogram 2: Local Government Financing and Budget Reform Program Cluster.
Manila (Loan 2584-PHI).
6
PDF is a forum that serves as a venue for dialogue on core development issues, including those concerning local
governments (finance, capacity development, performance benchmarking, and policy reforms on devolution).
7
ADB. 2005. Country Strategy and Program: Philippines, 2005–2007. Manila.
 3

ADB‟s country operations business plan 2009–2010, which strongly underscored the role of
decentralization and good local governance as outlined in the MTPDP.8

B. Program Outputs

9. The expected outputs of the LGFBR program were grouped into five components or policy
objectives: (i) improved completeness, timeliness, and transparency of releases of LGU shares
in national government revenues; (ii) enhanced efficiency and accountability in financial
management, planning, and expenditure management at the local level; (iii) enhanced
effectiveness and transparency of critical public services at the local level; (iv) improved LGU
access to public and private sources of capital for financing of policy reforms and development
projects; and (v) reduced dependence on national transfer through additional sources of
revenue developed at the local level. This subsection summarizes the sector analysis
underpinning the program design at the time of processing, and the measures implemented
under the cluster.

1. Intergovernmental fiscal relations: improved completeness, timeliness, and

transparency of releases of LGU shares in national government revenues.

10. Government transfers to LGUs are of three types: (i) formula-based block grants (i.e., the
internal revenue allotment (IRA); (ii) origin-based share in national government revenues (i.e.,
share in national wealth and other taxes); and (iii) ad hoc categorical grants. The IRA is the
most significant revenue source, especially for the lower income class LGUs.9 Under the LGC,
the aggregate IRA of LGUs is set at 40% of the actual internal revenue tax collections of the
government three years prior to the current year.10

11. The effectiveness of national transfers to LGUs was constrained by several obstacles.
(i) The quarterly IRA releases were not performed in a reliable manner. Despite the
provisions of the LGC, the government retained considerable discretion in
appropriating and releasing IRA. This turned the IRA into a highly unpredictable
revenue source for LGUs when the government‟s fiscal position was unfavorable.
At the same time, this limited LGUs‟ ability to budget and plan effectively. It also
hampered LGUs‟ access to financial markets, since creditors made LGUs rely
heavily on the IRA deposits as collateral.
(ii) IRA allocations did not fix the substantial vertical and horizontal fiscal imbalances
in LGU financing. Transfers did not adequately cover the cost of devolved
functions, and discriminated between certain groups of LGUs, with provinces and
municipalities complaining of unfavorable treatment.
(iii) Widespread complaints were reported on the non-transparent allocation of the
Priority Development Assistance Fund (PDAF). The PDAF is allocated to
members of Congress for discretionary spending at the LGU level, and if these
non-IRA grants are not channeled to local investments in a transparent way, they
can potentially undermine LGU planning for strategic use of the funds.

8
ADB. 2008. Country Operations Business Plan: Philippines, 2009–2010. Manila.
9
Bureau of Local Government Finance classifies LGUs in 6 classes based on a four year average of their regular
income with 1 being the wealthiest.
10
The aggregate IRA is then divided among different local government levels as follows: 23% to provinces, 23% to
cities, 34% to municipalities, and 20% to barangays. The IRA share of each tier of local government is then
apportioned to individual LGUs within each level based on population (50%), land area (25%), and equal sharing
(25%).
4

(iv) The release of LGU shares in national wealth taxes was neither timely nor
complete. The reasons for this were: (i) problems in accurately estimating tax
collections from natural resources since actual tax collections for the immediately
preceding year are not yet known when the General Appropriation Act is
prepared; and (ii) lack of information on the location of the taxable entity.

12. The government undertook reforms in intergovernmental fiscal relations to improve the
ability of LGUs to plan and budget their resources:
(i) The reforms improved the completeness, timeliness, and transparency of the
release of LGU shares in national government revenues. Republic Act 9358 was
passed in 2006, providing for „automatic appropriation‟ of the IRA from 2007. The
predictability and transparency in the release of the IRA was further improved by
the timely estimation and certification of the IRA shares by the Bureau of Internal
Revenue (BIR), and distribution of the Local Budget Memorandum (LBM) to
LGUs by June of every year, announcing their IRA share for the coming year. To
improve the transparency framework, the government, through the Department of
Budget and Management (DBM), also posted on its website the IRA share of
each of the 43,704 local governments in line with the formulas prescribed by the
LGC, and the releases of the PDAF. This enhanced transparency framework
has allowed citizens to monitor the amount each LGU is receiving from the
government and reduced uncertainty in fiscal planning at the local level.
(ii) The reforms improved the release of LGU special shares in national wealth and
other taxes. The LGFBR program supported the issuance and implementation of
Joint Circular 2006–1, which provided a multidepartment framework for the
release of LGU shares of national wealth in mining, forestry, and energy
royalties. In addition, Joint Circular 2009–1 has streamlined the documentary
procedure and delineated departments‟ responsibilities for the prompt release of
LGUs‟ share of mining taxes.11 With these actions, over the medium term, the
amount of transfer resources flowing to LGUs has increased and the uncertainty
over the releases of LGU shares of national wealth has been reduced.

2. Enhanced efficiency and accountability in financial management, planning,

and expenditure management.

13. The LGFBR noted that the efficiency and accountability in financial management,
planning, and expenditure management at the local level could be improved by addressing
several key challenges. First, local planning and expenditure management needed to be
improved by linking financial and budget reporting to local development planning. Second, the
planning links between regions and provinces were weak as coordination between government
and LGU planning units was lacking. Investment planning at the local level was formulated
independently of regional and national investment plans and vice versa. Third, revenue
estimates during budget formulation were very poor, distorting the integrity of local budgeting. In
addition, LGUs‟ reporting and procurement practices were totally inadequate. Accordingly, the
objectives of this policy area were to (i) streamline the oversight and capacity development
functions of NGAs,(ii) improve the fiscal management capacity of LGUs, and (iii) improve
implementation of the Government Procurement Reform Act (GPRA).

11
The Joint Circular was issued by the Department of Finance (DOF), DBM, Department of Interior and Local
Government (DILG), and Department of Environment and Natural Resources (DENR).
 5

14. To streamline the oversight and capacity development functions of NGAs, the LGFBR
program aimed to enhance local transparency and accountability in financial management,
planning, and expenditure management. It attempted to improve debt management and the
information base for LGU performance measurement and credit rating, and to improve also the
competency of local financial managers. Specifically, the program supported: (i) the issuance of
a Joint Circular 2007-1 to institutionalize a coordinated framework on harmonizing local
planning, investment programming, revenue administration, budgeting, and expenditure
management;12 (ii) the issuance of an updated budget operations manual, with 90% of LGUs
trained in its use; (iii) the completion and distribution of provincial planning guidelines and the
training of local officials in using the guidelines to enable them to plan, identify, prepare, and
prioritize critical programs and projects, and raise and allocate resources; and (iv) the
preparation of provincial development and physical framework plans and a provincial
development investment program using the guidelines on provincial and local planning and
expenditure management. Under the LGFBR, the government was also able to: (i) implement
the updated budget operations manual for provinces (81) and highly urbanized cities (HUCs)
(28); (ii) complete and implement a debt monitoring system at the provincial, city, and municipal
levels; and (iii) issue the barangay operations manual.

15. To improve the fiscal management capacity of LGUs, the LGFBR program supported:
(i) the development, computerization, and implementation of the statement of receipts and
expenditures (SRE) financial reporting system, and harmonization of the SRE with the new
government accounting system; (ii) 2,551 mandatory and demand-driven training programs for
494 LGUs in project management, operations and maintenance, planning, and investment
programming; and (iii) the development and implementation of a competency certification
system for local treasurers. On this last measure, the government also provided assistance to
the Mayors Development Center for the distance training of treasurers, the training of 228 LGUs
in standardized project financing, and other demand-driven training. Over the medium term,
these measures have improved the timeliness and accuracy of financial information for LGU
financial managers, and the overall fiscal and financial management systems.

16. To improve implementation of the GPRA, the LGFBR program aimed to improve
procurement efficiency and transparency at the local level, including the barangay level. To
achieve this, the program: (i) provided training courses on the GPRA to 86% of all LGUs;
(ii) prepared and pilot tested simplified procurement procedures for LGUs; (iii) developed and
implemented the barangay procurement manual; and (iv) simplified procurement procedures
and bidding documents. All LGUs implemented the GPRA with the help of the simplified guide
to the Generic Procurement Manual.

3. Performance Measurement and Service Delivery: enhanced effectiveness

and transparency of critical public services at the local level.

17. Development of an adequate framework for providing resources, including through private
financing, based on LGU‟s performance in the delivery of local services, was identified as a
reform priority. To address this issue, a two-track reform was implemented under the LGFBR to
develop a framework for performance-based grants and simultaneously provide a link for
improving the availability of credit financing to LGUs (see Program Output 4 described below).
More specifically, this key policy area sought to: (i) enhance financing options as a way to
improve infrastructure and the provision of social services at the local level; and (ii) improve
12
The Joint Memorandum Circular was agreed upon by the DOF, DBM, DILG, and the National Economic and
Development Authority (NEDA).
6

efficiency in the devolution of key functions and services, and enhance the effectiveness of
existing LGU performance monitoring systems, thus increasing private sector confidence in
lending to LGUs.

18. To enhance financing options for improved service delivery in key sectors, the LGFBR
program supported the government‟s plan to improve LGUs‟ access to development credit,
which would likely lead to improvements in the environment, local urban infrastructure, health,
and rural and agricultural services. The program also assisted the government in completing a
study on performance-based grants for LGUs, and in adopting a framework for such grants. The
program supported the institutionalization of a coordination body, the Coordination Committee
on Decentralization (CCD), at the national level to address recurrent and future issues on
decentralization. The program expanded the coverage of the Local Government Performance
Management System (LGPMS) and introduced the system to all LGUs. The system provided
LGUs with a tool to assess their strengths and weaknesses in the performance of their roles and
responsibilities. Indicators included in the system were derived largely from the LGC and
measured performance in four key areas: governance, administration, social services, and
economic development. The program also supported the integration of the Local Government
Financial Performance Monitoring System (LGFPMS) into the LGPMS, enriching the
performance monitoring framework for local governments in the country with the inclusion of
financial performance indicators.

4. Improved LGU access to public and private sources of capital for the
financing of policy reforms and development projects.

19. Given the expanded responsibilities of LGUs to provide a wide range of services to local
constituents, such as services in basic infrastructure and health, they require access to both
public and private sources of financing. Aligned to this, the government‟s long-term vision was
for the capital market and private lending to play a vital role in local government financing, in
order to diversify the sources of development credit for LGUs. Not all LGUs were able to borrow
from banks because of their lack of creditworthiness. However, cities had better access to credit
financing because of their creditworthiness. Thus, cities accounted for 54 percent of total
outstanding LGU loans in 2004, while provinces accounted for 18.8 percent, and municipalities
for 25.8 percent. Most LGUs relied primarily on Government Financial Institutions (GFIs) and
the Municipal Development Fund Office (MDFO) to finance the development of infrastructure,
capital investment, and a portion of operating expenses. In 2006, GFIs provided around 76% of
LGU development credit financing and the MDFO 7%. The GFIs had an advantage in the LGU
credit market because of their role as LGU depository banks. In the event of a default in the
payment of interest and amortization of the principal, the GFI, through a “back-to-back”
agreement with the LGU, can debit the LGU‟s IRA depository account in the GFI. This created a
structural impediment to private banks‟ entry into the market for lending to LGUs.

20. The LGFBR program supported the government‟s agenda to: (i) improve LGU access to
private sources of financing, thus increasing LGUs‟ ability to finance investments; (ii) increase
the availability of development financing for LGUs to achieve service delivery objectives; and
(iii) improve availability of financial information on LGUs to provide private investors with more
accurate information for assessing their creditworthiness.

21. To improve LGU access to private sources of financing, the LGFBR helped in the
adoption of the LGU financing framework as a national policy, and of the national government–
LGU cost sharing policy for the evaluation and processing of projects involving devolved
activities for LGUs financed by MDFO. The program also supported the issuance of guidelines
 7

for LGUs to open depository accounts in private banks. As a result, the DOF issued department
order no. 27-05, allowing private, thrift, rural, and cooperative banks to act as LGU depository
banks. With the aim of increasing the availability of development financing for LGUs, the
program supported the Program Lending (PROLEND) facility, as a program lending facility,
providing concessional credit financing to LGUs. The LGFBR also assisted in (i) the design of a
government financing window for projects supporting the MDGs, and (ii) the establishment of a
Disaster Calamity Fund. As regards financial information on LGUs, the program supported the
revision of the income classification system for LGUs, which considers only LGUs‟ own-source
revenues as an indicator, and integrated the system with the LGPMS. The LGFBR has assisted
also in the computerization of the SRE financial reporting system and its harmonization with the
New Government Accounting System, and the development of a debt certification system.
These activities provide potential creditors and investors with a better picture of the LGUs‟ own-
source revenue-generation capacity.

5. Development of additional sources of revenue at the local level, thereby

reducing dependence on the IRA.

22. The LGFBR design noted that LGUs‟ own source of revenue for development financing
was limited, thus creating dependency on the IRA. In 2006, tax revenue accounted for only 25
percent of total LGU income. To generate additional revenues, the LGUs imposed a huge array
of taxes, fees, and charges, with low collection rates and high administrative costs. The lack of
professional staff and inadequate automation were the constraints faced by LGUs in their tax
administration activities. These constraints affected all aspects of tax administration, including
poor taxpayer registration, inadequate tax law enforcement, and the lack of records and audit,
resulting in widespread tax delinquencies. This was further aggravated by the lack of
implementing guidelines governing local taxation. Hence, there was a need to focus on taxes,
fees, and charges that had high yield potential, and on improving their administration and
collection.

23. The LGFBR supported the government in achieving two key reform objectives:
(i) enhancing LGUs‟ ability to generate revenues from local business taxes; and (ii) improving
the collection of real property taxes. Under the first objective, an executive order was issued
requiring the BIR and its regional offices to provide tax information to LGUs. Interpretation of the
situs of tax rule for banks under Local Finance Circular 1–93 on the levying of a local business
tax was revised in 2007. In addition, guidelines were issued on the situs of tax rule for mining
firms in regard to the local business tax. A manual on creating a business taxpayers database
and billing and collection system for LGUs was developed and distributed. In addition, 72 LGUs
were trained under MDFO‟s Local Government Finance and Development project (LOGOFIND)
and 11 LGUs availed of loans under the Business Tax Enhancement Program of MDFO‟s
LOGOFIND initiative.

24. Under the second objective, the following was achieved: (i) 1,002 LGUs were trained
under MDFO‟s LOGOFIND on revenue mobilization and updating the local revenue code;(ii) 60
LGUs availed of loans for real property tax improvements under MDFO‟s LOGOFIND projects;
(iii) valuation standards for equipment and machinery were issued as an addendum to the
assessors‟ manual; and (iv) valuation training on machinery and equipment was completed for
70 LGUs. The manual includes revised valuation standards, a code of ethics, mass appraisal,
and market values as the basis for valuation. With the implementation of the updated manual on
valuation standards for machinery and equipment, the collection of property taxes was expected
to improve.
8

C. Program Costs and Disbursements

25. The cost of the LGFBR program cluster was $525 million. This was funded from ADB‟s
ordinary capital resources and consisted of two single-tranche loans of ¥34,263,100 or $300
million equivalent for subprogram 1 and $225 million for subprogram 2. The first tranche of
¥34,263,100 was valued at $337,552,086 on 9 April 2008 and was released on April 7, 2008.
The second tranche of $225 million for subprogram 2 was released on December 28, 2009.
AFD provided additional financing of $216 million for subprogram 2 through a collaborative
cofinancing arrangement with ADB.

D. Program Schedule

26. The implementation period for subprogram 1 was from January 2006 to 31 December
2007, while subprogram 2 was implemented from January 2008 to 31 December 2009. The loan
accounts were closed on 9 April 2008 for subprogram 1 after one extension and 31 March 2010
for subprogram 2.

E. Implementation Arrangements

27. DOF was the executing agency responsible for the overall implementation of the two
subprograms, including compliance with the policy actions, program administration,
disbursements, and maintenance of all program records. An LGFBR program coordination
committee (the Committee) was established at the start of subprogram 1. It was chaired by the
undersecretary of DOF and its members were officials from the implementing agencies, namely
BLGF, MDFO, DILG, DBM, and NEDA. The committee was responsible for coordinating the
implementation of LGFBR program policy actions with agencies supporting the program and
met quarterly to monitor progress and oversee implementation of the program.

F. Conditions and Covenants

28. The program cluster accomplished 42 policy triggers. The status of compliance with the
policy triggers for each subprogram is shown in Appendix 2 and 3. In addition to the policy
triggers, both subprograms had additional covenants on administering the program, all of which
were complied with (Appendix 4).

G. Related Technical Assistance

29. Two accompanying advisory TA projects, were approved to complement the LGFBR
program.13 The TA 7019 project that accompanied subprogram 1, funded by the Japan Special
Fund, was designed to support implementation of the LGFBR program cluster by (i) building
institutional capacity in the development and implementation of a medium-term reform agenda
in local government financing and governance; (ii) providing the government with just-in-time
policy advice; and (iii) facilitating achievement of the delivery targets and commitments in the
LGFBR‟s policy matrix. The total cost estimate was $1.1 million, with ADB providing $0.8 million
and the government the balance of $0.3 million for the remuneration and per diem of local
consultants ($180,000) and office accommodation, transport, and other costs ($120,000). Actual
disbursements amounted to $742,230 and the project was closed on 25 August 2010. The

13
ADB. 2007. Technical Assistance to the Republic of the Philippines for Local Government Financing and Budget
Reform Program. Manila. (TA 7019) and ADB. 2009. Technical Assistance to the Republic of the Philippines for
Support to Local Government Financing. Manila. (TA 7451).
 9

executing agency for the TA was DILG. A project steering committee consisted of DILG, DOF,
DBM, NEDA, and representatives of the League of Provinces, League of Municipalities, and
League of Cities. DILG coordinated with DBM, DOF, NEDA, the LGU Leagues, and participating
LGUs. The project steering committee met every quarter to review the written assessment of
implementation progress and recommendations prepared by a technical committee, and
discussed the review with ADB.

30. The TA was rated successful,14 as it delivered a wide range of useful outputs and well-
targeted activities for improved local fiscal management. The outputs of the TA were organized
under three main components.15
(i) Component I. A Coordination Committee on Decentralization (CCD) was established
to strengthen the institutional coordination of decentralization reforms. The CCD
promoted, coordinated, and oversaw the decentralization reforms, including the
changes envisaged in the LBFGR policy matrix. The CCD has been very successful
in defining a coordinated agenda of reforms and ensuring adequate dialogue across
stakeholders, including government agencies, LGUs and development partners.
(ii) Component II. Planning and budgeting management capacity at the city level has
been strengthened through the implementation of: (i) an enhanced guide to
Comprehensive Development Plan (CDP) preparation, (ii) training modules and
session guides for the conduct of courses on CDP preparation, (iii) a cross-reference
guide on suggested tools and techniques for planning, investment programming, and
plan monitoring and evaluation, extracted from the various manuals and guidebooks
prepared by the relevant NGAs, and (iv) reports on the consultations among all
stakeholders on the harmonization of the Comprehensive Land Use Plan (CLUP) and
CDP.
(iii) Component III. Revenue generation and service delivery was enhanced through the
improved implementation of the Local Governance Performance Management
System (LGPMS). This was achieved through the improvements to the LGPMS
manual, and through the widespread use of LGPMS data. In addition, the TA 477816
assisted in refining the LGPMS system design, and the system for monitoring and
analyzing overall LGU performance. This TA initiated work on a number of key areas
further developed with the LGFBR.

31. The TA 7451 project accompanying subprogram 2 was estimated at $1 million, with ADB
financing $0.7 million from the Technical Assistance Special Fund. Total actual disbursements
amounted to $0.607 million. The TA provided analytical inputs, system development, and
institutional capacity building support to BLGF, MDFO, and DBM to further strengthen their
capabilities to support LGUs in effecting key local resource mobilization, expenditure
management, and service delivery reforms. This TA was completed in September 2012, and its
associated TA completion report will be prepared in 2013. The TA has been very successful in
providing continuity to reforms incorporated in the LGFBR‟s post program partnership
framework.

14
ADB. 2011. Local Government Financing and Budget Reform Program (TA 7019). Technical Assistance
Completion Report. Manila.
15
See ADB TA 7019 – PHI: Local Government Financing and Budget Reform Project, Final Report (Volume 1: Main
Report and Appendices), Chapter 3, pp 9-24.
16
ADB. 2006. Technical Assistance to the Republic Philippines for Local Governance and Fiscal Management
Project (formerly Strengthening LGU Management and Administration). Manila (TA 4778).
10

H. Consultant Recruitment and Procurement

32. Implementation of the TA under subprogram 1 took place from August 2008 to May 2010
with a total of 73.77 person-months of national consultants. The consultants were mostly
engaged under ADB‟s contract with a consulting firm (Poyry IDP Consult, Inc.), but with the
addition of three individual experts. The TA delivered most of the expected outputs and the
performance of the consultants was satisfactory. The TA under subprogram 2 was also
implemented by Poyry IDP Consult, Inc, from September 2010 to September 2012, with a total
input of 64 person-months.

I. Performance of the Borrower and the Executing Agency

33. The performance of the government is rated highly satisfactory. Through the CCD and the
PDF, the government continued to refine its long-term vision for decentralization and reforms in
local public financial management. Government ownership of the program was very strong, as
shown by the number of quality policy triggers and measures completed on time during the
program cluster period.

34. The commitment of the DOF (the executing agency) and the implementing agencies was
also commendable, given the substance of the reforms undertaken by these agencies, which in
many cases required solid inter-agency coordination to accomplish. The issuance of Joint
Memorandum Circulars orchestrated by the DOF is one example of the strong cooperation
among the implementing agencies. Other instances include the two-track reform under the
Performance Measurement and Service Delivery component, which led to the adoption of
performance-based grants and links to credit financing. The concerted efforts on interlinked
components aimed at improving the availability of timely and accurate financial information
systems for fiscal and financial management at the local level were equally commendable.
These reforms continue to be pursued and refined by the oversight agencies.

35. In addition, the final subprogram 1 TA report indicates that the TA was used effectively by
the DOF and implementing agencies to provide local officials with useful practical knowledge,
tools, and skills that would further strengthen their capacity in designing, funding, and delivering
quality government services at the local level.

J. Performance of the Asian Development Bank

36. The performance of ADB has been highly satisfactory. During the processing of the
program cluster, ADB staff conducted ample two-way dialogue and policy consultations with the
DOF and implementing agencies to ensure that the program was demand driven, with solid
government ownership. ADB also worked proactively with other donors, resulting in cofinancing
from AFD, which continues to be a close partner in reforms for the forthcoming cluster. The
design of the TA projects was also relevant and effective in helping the government accomplish
the policy measures of the program cluster.

37. As part of the project completion review, ADB requested the government to provide its
assessment of the program through a survey questionnaire completed by the implementing
agencies. Overall, the government rated the program favorably in terms of relevance, efficiency,
effectiveness, and likely sustainability. The full results of the survey are presented in Appendix
6.
 11

III. EVALUATION OF PERFORMANCE

A. Relevance

38. The program cluster was highly relevant to the government‟s reform agenda. The
program‟s ultimate objective of increased efficiency and effectiveness of basic public services
delivered at the local level was in line with the government‟s long-term vision for reform, as
articulated by the MTPDP and the PDF. The LGFBR took into account the need to improve the
ability of LGUs to be more responsive to local development challenges, by addressing the
obstacles faced by LGUs in accessing financial resources. The LGFBR helped to ensure the
efficient delivery of devolved functions, by building the institutional capacity of LGUs to plan and
budget for the better delivery of key public services to their constituents. The program also
complemented the broader policy objective of continued fiscal consolidation and public debt
sustainability, provided by the Development Policy Support Program.

39. The relevance of the program was also characterized by a well-designed framework. The
five key policy objectives were harmoniously interlinked, and they reinforced each other to bring
about the main objective of enhanced governance and better delivery of public services through
increased financial resources, improved fiscal management, and an effective performance
management system.

40. The government‟s assessment based on the project completion review questionnaire
shows that most implementing agencies rated the program as relevant or highly relevant both at
the time of formulation and after its completion. This reflects the government‟s favorable view of
the use of LGFBR-type reforms as a strategy to foster local growth and advance local
development. The government‟s responses to the survey questionnaire also show that the
implementing agencies plan to retain some of the key features of the LGFBR program for similar
initiatives in the future. These include continued efforts to develop accountability and
transparency systems, and increase local sources of revenue.

B. Effectiveness in Achieving Outcome

41. The program is rated effective in achieving the outcome.17 Overall, the program has built a
strong foundation for improved flows of financial resources into the LGUs. The program
contributed to improved completeness, timeliness, and transparency in the release of LGU
shares of national government revenues and grants. It has also strengthened the framework for
improving LGU access to private sources of capital for development projects, and supported
measures aimed at developing LGUs‟ own revenue sources. The reform on intergovernmental
fiscal transfers was a difficult decision on the part of the government, because the change in
legislation made the IRA releases not just "automatic" but "automatically appropriated." This
effectively meant that the government retained no legal loophole to withhold any portion of the
IRA or delay its release. The only other item that enjoys a similar status, in terms of being an
automatic budget appropriation, is the payment of external debt obligations. On the non-
financing side, the program helped build the institutional preconditions for improved efficiency
and accountability of financial management, planning, and expenditure management at the local
level. The adoption of the LGPMS, improvements in the competency of local officials, and
enhancement of the financial reporting frameworks at the local level are some of the key
accomplishments of the reforms. In due time, the reforms may generate even wider benefits.

17
ADB. 2006. Technical Assistance to the Republic Philippines for Local Governance and Fiscal Management
Project (formerly Strengthening LGU Management and Administration). Manila (TA 4778).
12

Table 1. LGUs’ Sources of Revenues

2006-2009
(In million pesos)

Year IRA Loans and Business Real Total Local

Borrowings Tax Property Sources

2007 147,239 5,065 26,130 27,387 79,403

2008 171,861 5,197 28,880 29,799 89,552
2009 189,374 10,603 30,907 30,185 92,731
Source: SIE on BLGF website

Figure 1. LGUs’ Expenditures by Service Categories

(Aggregated, cumulative, in million pesos)

Total Expenditures

Labor and Employment 2009

2008
Housing and Community Development
2007

Education, Culture & Sports/ Manpower Development

Social Security /Social Services & Welfare

General Public Services

Health Nutrition and Population Control

Economic Services

- 20,000 40,000 60,000 80,000 100,000 120,000

Source: SIE on BLGF website, data for 2009 are preliminary

42. The reforms have helped LGUs to obtain greater and more stable financial resources.
LGUs have also improved their capacity to plan and budget for the general welfare of their
constituents in a transparent and accountable manner. Consolidated data from LGUs indicate
that local government revenues have continued to increase in cumulative terms. Though
revenue from IRA remains the biggest portion, LGUs were able to increase non-IRA resources
from loans and borrowings and local revenue sources (Table 1). In terms of LGUs‟ access to
private credit, the data showed that higher borrowing levels were recorded in 19 provinces
between 2006 and 2009. Over the same period, real revenues grew strongly in all provinces
and cities, regardless of their income base.

43. Between 2007 and 2009 LGUs‟ expenditures concentrated on economic services; health
nutrition and population control; general public services; and social security and social services
and welfare (Figure 1). Some modest improvements in financial management were observed
during implementation of the LGFBR. Data provided by Commission on Audit for 2008 showed
a decrease of 22.6% in the number of fraud cases relative to 2006, with the amount of money
involved in each case declining by nearly 15% from 2006 to 2008.18

44. The government‟s own assessment, based on the results of the survey questionnaire

18
Based on the assessment provided in the report and recommendation of the President (RRP) for subprogram 2.
 13

during project completion review, shows that, overall, the program is viewed as effective. In
particular, the component on developing local sources of revenue was singled out as highly
effective.

C. Efficiency in Achieving Outcome and Outputs

45. The program is rated efficient in achieving its outcome and outputs, as it was efficiently
managed by the DOF, implementing agencies, and ADB. The design of the program cluster,
including the use of expected prior actions for subsequent subprograms enveloped by a
medium-term framework, enabled the program to be implemented efficiently. All policy triggers
were accomplished within the original time frame. Through the TA, the CCD was formed to
pursue reforms collectively, and the capacity of local officials was enhanced, thereby
contributing to the success of the program. Based on the project completion review survey, the
government has rated the project as efficient.

D. Preliminary Assessment of Sustainability

46. The LGFBR program is considered most likely to be sustainable. Under the program, the
government has strengthened the institutional framework for the increased efficiency and
effectiveness of basic public services delivered by LGUs. Supporting systems, such as the
competency certification of local officials, and improved performance management and financial
reporting systems have been developed. LGUs have also benefited from new regulations for
better access to public and private sources of capital for development financing; and important
enhancements to local revenue assignments have been conducted. Moreover, the TA projects
have helped implementing agencies and LGUs to internalize concepts, ideas, and tools for
efficient and effective fiscal management, development planning, and service delivery at the
local level, all of which will contribute to the sustainability of the reforms. To date, reforms are
continuously being pursued by the oversight agencies through the CCD and the PDF. The
likelihood of highly sustainable results will continue with the implementation of the post LGFBR
program framework (Appendix 5) and additional support from the donor community.

E. Impact

47. To monitor the progress of the program in achieving its expected outcome, the
multidimensional poverty index (MPI), developed jointly by the United Nations Development
Programme and NEDA, is used.19 The MPI measures the level of multiple deprivations in health,
education, and standard of living that are simultaneously experienced by the poor. It can be
seen as a composite index of overall well-being as perceived by the poor. For measuring
poverty in the Philippines, three surveys are used as inputs to the MPI: the National
Demographic and Health Survey (NDHS), the Family Income and Expenditure Survey (FIES),
and the Annual Poverty Indicator Survey (APIS). Based on these surveys, sub-indicators are
developed to measure the degree of deprivation with respect to: (i) education, (ii) health, and
(iii) living standards. The health indicator summarizes indicators on child mortality, access to
water and sanitation, nutrition, and food poverty. The education indicator summarizes indicators
19
The Multidimensional Poverty Index (MPI), developed in 2010 by the Oxford Poverty & Human Development
Initiative and the United Nations Development Programme uses a number of variables in addition to traditional
income measures to determine poverty. An application to the Philippines can be found in: Balisacan, Arsenio M.
2011. What has really happened to poverty in the Philippines? New measures, evidence and policy implications.
Presentation material. United Nations Development Programme and NEDA, downloadable at www.undp.org.ph.
Data source in Figure 5 is Balicasan, Arsenio M. (2011).
14

on years of schooling, children‟s school attendance, and potential schooling. Finally, the
standard of living indicator summarizes indicators on access to electricity, quality of shelter
(flooring, roof, and wall), mobility (access to motor vehicles and access to national roads), level
of urban agglomeration, asset ownership (household asset, transport, and tenure), and other
sources of income.

48. It can be seen in Figure 2 that the MPI, measured using these three separate surveys
(i.e., NDHS, FIES, and APIS), has declined over the last decade, suggesting a gradual
reduction in the intensity of deprivation in terms of health, education, and standard of living. This
provides an early indication that the local governance finance reforms, in conjunction with other
reforms that have been undertaken to fight poverty in the Philippines in the past decade, may
have had a positive impact, and therefore needs to be sustained. As the data measures a
multiplicity of indicators, it is not necessarily at odds with the perceived stalling of poverty
reduction recently observed in the Philippines as per government surveys.

Figure 2. Multidimensional Poverty Index (MPI)

0.2 MPI
0.19
0.18 0.174

0.17
0.156
0.16
0.15 0.14
0.14 0.132 0.135
0.126
0.13
0.12
0.124
0.11 0.119

0.1
2002 2003 2004 2005 2006 2007 2008 2009 2010

National Demographic and Health Survey (NDHS)

Family Income and Expenditure Survey (FIES)
Annual Poverty Indicator Survey (APIS)

IV. OVERALL ASSESSMENT AND RECOMMENDATIONS

A. Overall Assessment

49. The LGFBR program cluster was a highly relevant program, adequately linked to the
government‟s reform agenda, and to ADB‟s partnership strategy and operations business plan
in the Philippines. The program was demand driven, with strong government commitment and
ownership, effectively sequenced, and strongly supported by other development partners. Its
implementation involved high-level coordination among government agencies, which has
facilitated the achievement of positive outcomes. The sustainability of accomplishments
recorded to date, and the ability to fully achieve the expected outcome and impact, will depend
on the ability of the government and the donor community, including ADB, to nurture past
achievements and push through with further reforms. Accordingly, the LGFBR is rated highly
successful overall.

B. Lessons Learned

50. Local government reform is a complex undertaking, involving major changes in the
regulatory framework, institutional arrangements, supporting infrastructure, and human capacity.
It also requires a long-term perspective in both design and implementation. Thus, the
 15

government‟s continuous commitment to reform, its ownership of the program, and collaborative
support by the donor community are all necessary elements in designing local government
reform through a programmatic approach. The LGFBR program cluster shows that ADB,
through continuous dialogue with the government and collaborative financing with other donors,
was able to develop a well-designed program that is sufficiently demand driven. Substantial
reforms were accomplished, which laid a stronger foundation for achieving the program‟s
objective of more effective delivery of key government services at the local level. The program‟s
success and likely sustainability can be attributed also to the TA activities undertaken during
implementation, which have strengthened the capacity of local officials in carrying out reforms.

C. Recommendations

1. Program Related

51. Future Monitoring. Sustaining the key achievements of the LGFBR should be a key
priority of ADB and the government going forward. The successful implementation of policy
measures linked to the post-LGFBR program framework has provided continuity to the first two
subprograms, and has paved the way for the processing of the next subprogram in support of
fiscal decentralization and local government finance reforms. In addition, a joint assessment by
ADB, the government, and AFD as cofinancier is being conducted to monitor the sustainability
of the outputs and fine-tune the design of the next stage of reforms to ensure further
improvements in all outcome and impact indicators. Considering the effective role that TA
activities have played in sustaining policy reforms and building capacity, it would be useful to
continue to provide TA so that post-program outcomes can be achieved smoothly and
preparations can be made for the next program, which is already included in the country
operations business plan for 2013–2015.

52. Further Action and Follow Up. Based on the project completion survey, the government
has recommended some features that could be added to the next program, such as:
(i) harmonization of fiscal accounts and reports by LGUs, (ii) rationalization of the functional and
revenue assignments of LGUs, (iii) improvement in intergovernmental transfers to LGUs by
incorporating performance and equity, and (iv) guidelines on public–private partnerships. All
these policy reforms are currently at the core of the policy dialogue being conducted, and for
some of them, such as the public–private partnerships, ADB already has initiatives in place.

53. Additional Assistance and Timing of PPER. ADB is currently processing a new cluster
of policy-based loans in support of local government finance reforms in Philippines, including
co-financing from the AFD. A first joint assessment of the implementation of the post-program
partnership framework has been completed and serves as the basis of the current policy
dialogue. The new cluster is expected to be approved by ADB Board in September 2013. As
such, the PPER would probably would benefit of the analysis conducted and can proceed once
processing is completed.

2. General

54. Future initiatives in support of Government‟s reforms should underline ADB‟s involvement
in the review and eventual reform of the system of intergovernmental relations, specifically the
Local Government Code of 1991 and the Local Government Financing Framework. To that
extent, intense policy dialogue with all government counterparts will be required. Future
programs of assistance should equally aim to ensure co-financing from other development
partners as was the case of earlier ADB program loans.
 16 Appendix 1
Design
Summary
Impact
Increased efficiency and
effectiveness of basic
public services delivered by
LGUs to their constituent
communities
Outcome
LGUs avail themselves of
enhanced resources and
capacity to plan and budget
for the general welfare of
their constituents in a
transparent and
accountable way
DESIGN AND MONITORING FRAMEWORK
Performance Targets/Indicators
More than half of the aggregate
LGU indicators improve by one-
fifth to one-tenth of 2007 results by
2012: (i) ratio of health facilities to
population, (ii) access to basic
services such as water and
electricity, (iii) sanitation
conditions, (iv) extent of solid
waste collection and disposal, and
(v) presence of sewerage facilities.
Real local government revenues,
including access to public and
private sources of credit, increase
by at least 4% annually at all
levels of government from 2007 in
two-thirds of all provinces and
highly urbanized cities and in most
LGUs in the fourth to sixth income
classes.
Real expenditures for service
delivery increase by at least 2%
annually from 2008 in two-thirds of
provinces, highly urbanized cities,
and in most LGUs in the fourth to
sixth income classes.
The number of fraudulent cases
reported by COA decreases by at
least 20% at all sub-national
levels.
Monitoring Mechanism/
Update to Subprogram 2
The Multidimensional Poverty
Index (MPI), measuring
deprivation in terms of health,
education and standard of
living, has continued to decline
since 2003. The NDHS
dimension of the MPI declined
from 0.132 in 2003 to 0.126 in
2008. The FIES dimension
declined steadily from 0.174 in
2003 to 0.156 in 2008 and
0.135 in 2009. The API
dimension declined from 0.14
in 2004 to 0.124 in 2007 and
0.119 in 2008.
(See also Figure 2 and sub-
section III.E. in the main text).
BLGF‟s SIE data indicate that
LGUs‟ sources of revenues
have continued to increase in
cumulative terms between
2007 and 2009. The
cumulative IRA figure
increased by 30% (from 83.7
billion pesos to 108.8 billion
pesos) between 2007 and
2009 despite the GFC. There
have been early signs of more
diversified sources of
revenues. The data between
2006 and 2009 show that new
loans or borrowings were
recorded in 19 provinces
(See also Table 1 and
subsection III.B. in the main
text).
BLGF‟s SIE data indicate that
LGUs have continued to
increase spending for key
services.
(See Figure 1 and subsection
III.B. in the main text).
Data provided by COA for
2008 show that the number of
fraudulent cases has
decreased, with the amount of
money involved in each case
declining by nearly 15% (See
subsection III.B. in the main
text).
Assumptions
and Risks
Assumption
LGUs use enhanced
resources for investments
in basic public services.
Risk
Key government agencies
at all levels of government
may be preoccupied by
measures to mitigate the
impact of the global
financial crisis on the
economy and vulnerable
groups. This may leave
limited resources to
implement the agreed
program.
Assumption
Mechanisms are in place
in LGUs at all levels to
provide incentives to make
use of enhanced resources
and capacities to plan and
budget for the general
welfare of constituent
communities.
Risk
Delays may be
experienced in engaging
oversight agencies and
LGUs because of the
election scheduled in May
2010.

Design
Summary
Outputs
1. Completeness,
timeliness, and
transparency of release
of LGU share in national
government revenues is
improved.
2. Enhanced efficiency and
accountability in local
financial management,
planning, and
expenditure management
3. Enhanced effectiveness
and transparency in the
delivery of critical local
public services
Performance
Targets/Indicators
Passage of Republic Act
9358;
IRA release to LGUs amounts
to P183 billion in 2007 and
P210 billion in 2008
Predictability of annual IRA
release ensured by DBM in
time for preparation of LGU
budgets from 2007
Documentary requirements on
the release of the LGUs‟ share
in the proceeds from the
development and utilization of
national wealth in mining,
forestry, and energy reduced
from five to two by December
2007.
Requirements for the release
of the special share of LGUs
in mining taxes further
reduced by BIR by December
2008
Capacity development for
LGUs in planning, revenue
mobilization, expenditure
management, and budgeting
harmonized by 2010
Committee for implementation
of the competency certification
system for local treasurers
officially named and convened
by BLGF by January 2011
Improved training skills
available for the
comprehensive development
plan by January 2011
Implementation of the
performance-based incentive
policy included in the design of
at least one sector program
with national Government and
ODA funding by January 2011
Use of the Special Education
Fund improved by January
2011
Efficiency and transparency of
performance data improved
Appendix 1 17
Monitoring Mechanism/ Assumptions
Update to Subprogram 2 and Risks
Copy of the Republic Act. Assumption
There is no political pressure on
DBM to ignore the provisions of
Official certification from BIR Republic Act 9358 or to
suppress transparency on IRA
releases
Local budget memorandum for
Risk
the indicative IRA to the LGUs
Financial crisis leading to
for the ensuing budget year by
unmanageable public sector
June of the current year for
deficit
2007–2010
Certification of posting from
DBM and DBM website
Copy of joint circular
Copy of BIR memorandum
order
Assumption
Copy of joint memorandum
Oversight agencies‟ limited
circular providing the schedule
understanding of capacity-
of joint capacity development
building roles for LGUs
initiatives
Risk
Incentive for coordination
The Competency Certification
among oversight agencies may
System has been finalized and
weaken over time
is under review by the BLGF
Management.
Certification from MDFO Assumption
Sector agencies and donors
remain committed to
implementing the performance-
based incentive policy
Risk
Updated guidelines by DBM in Financial crisis results in a
coordination with the DepEd, decrease in transfers
DILG, and COA
DILG Website.
 18 Appendix 1

for at least 90% of provinces,

cities, and municipalities by
January 2011

4. Improved LGU access to Guidance availability by

public and private January 2011 to ensure that
sources of capital for ODA funds are used in a way
financing policy reforms that does not crowd out
and development private sector financing
projects
Operational efficiency of
MDFO improved by January
2011
PROLEND policy improved by
January 2011
MDFO-PGB increases the
amount in the MDG fund and
other projects for achieving
the MDGs as the number of
interested LGUs increases
Copy of guidelines submitted Assumption
by DOF Priority funding will not be
affected. The willingness of
LGUs to provide quality
performance data increases
over time.
MDFO-PGB resolution on
rationalization plan of MDFO
Risk
provided by MDFO, setting up
Private sector financing does
MDFO as an attached agency
not grow with the increased
of DOF
availability of financial
MDFO-PGB resolution provided information on LGUs.
by MDFO
MDG fund allocation provided
by DOF

BLGF creditworthiness rating Implementation of the

system available on the creditworthiness system will be
internet by January 2011 done in 2012.

Transparency of local The procedure for building up Assumptions

5. Additional local sources
business taxpayer database
of revenue developed,
improved by January 2011
thereby reducing
dependency on IRA
Qualification standards for
local assessors enforced by
January 2011
the database has been finalized Business tax revenue base of
under the subprogram 2 TA for LGUs is sufficient to justify
Support to Local Government collection cost
Financing. The database is LGUs are increasingly willing to
being rolled out in 2012. use property-evaluation
methods
The Real Estate Service Act
became effective on July 30, Risk
2009. Government may run out of
resources for capacity
The real estate service
development planned for the
profession is now under the
program
supervision of the Professional
Regulatory Board of Real
Estate Service (PRBRES)
through the Professional
Regulation Commission (PRC).
Only licensed real estate
professionals are appointed to
the position of government
assessors and assistant
assessors.

Improved regulation for the Copy of joint memorandum

establishment of local circular of BLGF, DBM and
economic enterprises DILG.
available by January 2011
API = Annual Poverty Indicator, BIR = Bureau of Internal Revenue, BLGF = Bureau of Local Government Finance,
COA = Commission on Audit, DBM = Department of Budget and Management, DepEd = Department of Education,
DILG = Department of Interior and Local Government, DOF = Department of Finance, FIES = Family Income and Expenditure
Survey, GFC = Global Financial Crisis, IRA = internal revenue allotment; LGU = local government unit, MDFO = Municipal
Development Fund Office, MDG = Millennium Development Goal, MPI = Multidimensional Poverty Index, NDHS = National
Demographic and Health Survey, PGB = Policy Governing Board.
Source: Asian Development Bank.
 Appendix 2 19

PERFORMANCE OF LOCAL GOVERNMENT FINANCING AND BUDGET REFORM

PROGRAM, SUBPROGRAM 1 – TRIGGERS

Original Triggers in Subprogram 1

Performance
Document, Appendix 3
A. Intergovernmental Fiscal Relations: Improving Completeness, Timeliness, and Transparency in
the Release of LGU Shares in National Government Revenues and Grants
1. Republic Act 9358 passed Accomplished. Local budget memorandum (LBM) no. 52, issued
providing automatic appropriation of on 5 January 2007, authorized the distribution of the IRA share of
IRA. LGUs amounting to P183 million.
2. IRA share of local government Accomplished. LBM no. 57, issued on 11 July 2008, certifies
units (LGUs) estimated timely by LGU shares of IRA for distribution in 2009 at P210.7 billion. LBM
Bureau of Internal Revenue (BIR) for are issued to guide the preparation of LGU budgets for the
2007 at P183 billion. following year.
3. BIR certified an IRA of P210 billion Accomplished. DOF-DBM-DILG-DENR joint memorandum
for release in 2008. circular no. 2009-1, issued on 31 March 2009, streamlined the
documentary procedure to just one document and delineated
agencies‟ responsibilities in promptly releasing LGU shares of
mining taxes.
4. Uploading of the Priority
Development Assistance Fund
(PDAF) releases on the DBM
website
5. Framework adopted on the Accomplished. Framework was adopted and releases started in
release of LGUs‟ share in the 2008 from taxes collected in 2007.
proceeds from the development and
utilization of national wealth in
mining, forestry, energy and mining
royalties reducing the documentary
requirements from 5 to 2 (Joint
Circular 2006-1).
B. Fiscal Management, Planning, and Public Expenditure Management: Enhancing Efficiency and
Accountability in Financial Management, Planning, and Expenditure Management at the Local
Level
1. Coordinated framework Accomplished. Local treasury operations manual completed and
developed among Department of distributed to all LGUs.
Finance (DOF), DBM, Department
of Interior and Local Government
(DILG), and National Economic
Development Authority (NEDA)
on the harmonization of local
planning, investment
programming, revenue
administration, budgeting, and
expenditure management (Joint
Memorandum Circular 2007-1).
2. Issuance of Updated Budget Accomplished. 23 provinces have prepared the provincial
Operations Manual (UBOM), with development and physical framework plan and the provincial
90 percent of LGUs trained in its development investment program using the provincial planning
use. guidelines.
3. Statement of Receipts and Accomplished. SRE financial reporting implemented by
Expenditures (SRE, formerly treasurers at all LGU levels.
Statement of Income and
20 Appendix 2

Expenditures) financial reporting

system harmonized with New
Government Accounting System
(NGAS) completed and
computerization achieved.
4. 2,551 mandatory and demand Accomplished. Competency certification system for all local
driven trainings conducted for treasurers completed and implemented.
513 LGUs in the areas of project
management, operation and
maintenance, planning and
investment programming.
5. 86 percent of all LGUs trained in
the new Government Procurement
Reform Act (GPRA).
C. LGU Performance Measurement and Service Delivery: Enhancing Effectiveness and
Transparency in the Delivery of Critical Public Services at the Local Level
1. 217 3rd to 6th income class LGUs Accomplished. Exceeded Target. 270 LGUs availed
availed of financing for improved themselves of financing for investments in environmental and
service delivery through health projects amounting to P3.2 billion.
investment in urban infrastructure
and public services with total loans
amounting to P2.25 billion.
2. 100 percent of provinces, cities, Accomplished. Study on performance-based grants (preliminary
and municipalities (excluding analytic and design work for the development of a performance-
ARMM) covered by Local based grant system for LGUs) completed in June 2008.
Government Performance

3. Local Government Financial Accomplished. Exceeded Target. MDFO-PGB has adopted

Performance Monitoring System
(LGFPMS) integrated into
LGPMS.
D. Credit financing: Improving LGU Access to Public and Private Sources of Capital for Financing
of Policy Reforms and Development Projects
1. LGU financing framework as a
national policy approved.
2.Guiding principles and National
Government (NG)-LGU cost
sharing policy in the evaluation
and processing of projects
involving devolved activities for
LGUs financed by MDFO,
reconfirmed in 2007.
the policy. In addition, the Development Budget Coordination
Committee approved the performance-based incentive policy on
20 February 2009.
Accomplished. In 2007 and 2008, DOF approved a request
from some LGUs, allowing them to open depository accounts in
private banks on a case-by-case basis and based on conditions
provided under the Local Government code of 1991. DOF
department order no. 27-05 issued guidelines to amend
department order no. 32-03, allowing the non-government
Philippine National Bank; Philippine Postal Savings Bank; Al-
Amanah Islamic Bank of the Philippines; Philippine Veterans
Bank; and thrift, rural, and cooperative banks to act as LGU
depository banks. The case-by-case approach for approval is
consistent with measures to identify risk from moral hazard and
the need to perform diligence on private financial institutions.
Substantially Accomplished. 7 LGUs were approved for a
PROLEND loan as documented in MDFO-PGB resolutions.
MDFO is currently reviewing the PROLEND policy guidelines to
improve accessibility.

3. At least P2 billion allocated for Accomplished. Exceeded Target. 75 LGUs have been
 Appendix 2 21

the PROLEND facility. approved for loans for MDG projects under the PROLEND
initiative.
4. A financing window for projects Accomplished. Exceeded Target. MDFO has not only
supporting the Millennium developed and approved the new modality of the Disaster
Development Goals created and Management Assistance Fund but also implemented it with a
P500 million allocated for the fund allocation of P200 million
facility.
5. A loan facility amounting to Accomplished. Revised income classification system completed
$83.75 million created providing and incorporated into local government financial performance
a performance grant of up to 20 monitoring system
percent of the total project cost.
E. Local Own-Source Revenues: Reducing LGU Dependency on the Internal Revenue Allotment by
Developing Buoyant Sources of Revenues at the Local Level
1. Executive Order issued requiring Accomplished. DOF department order no. 9-08 for BIR to
BIR to provide tax information to release tax information to LGUs issued on 26 March 2008.
the LGUs.
2. Revised interpretation of Situs of Accomplished. Local finance Circular 2-09 issued by DOF for
Tax Rule for Banks under Local mining firms on situs of local business tax dated 20 August 2009.
Finance Circular 1-93 in levying
the local business tax in 2007.
3. 11 LGUs availed of loans under Accomplished. Valuation standards for equipment and
the Business Tax Enhancement machinery developed and included as an addendum to the local
Program of MDFO‟s LOGOFIND assessors‟ manual.
Project as of 2007.
4. 60 LGUs availed of loans for real Accomplished. 71 LGUs trained on valuation of equipment and
property tax improvement under machinery to date.
MDFO‟s LOGOFIND Project as of
2007.
5. 11 LGUs availed of loans under Accomplished. Valuation standards for equipment and
the Business Tax Enhancement machinery developed and included as an addendum to the local
Program of MDFO‟s LOGOFIND assessors‟ manual.
Project as of 2007.
6. 1,002 LGUs trained under
MDFO‟s LOGOFIND on Revenue
Mobilization and Updating the Local
Revenue Code and other demand-
driven modules. (BLGF)

7. Valuation training for code of

ethics mass appraisal, and
market values as a basis of valuation
completed for 1,406 LGUs.
BIR = Bureau of Internal Revenue, BLGF = Bureau of Local Government Finance, DBM = Department of Budget and
Management, DENR = Department of Environment and Natural Resources, DILG = Department of Interior and Local
Government, DOF = Department of Finance, IRA = internal revenue allotment; LGU = local government unit,
MDFO = Municipal Development Fund Office, MDG = Millennium Development Goal, PGB = Policy Governing Board,
PROLEND = program lending facility, SRE = statement of receipts and expenditures.
Source: Asian Development Bank.
22 Appendix 3

PERFORMANCE OF LOCAL GOVERNMENT FINANCING AND BUDGET REFORM

PROGRAM, SUBPROGRAM 2 – TRIGGERS

Original Triggers in Subprogram 2

Performance
Document, Appendix 5
A. Intergovernmental Fiscal Relations: Improving Completeness, Timeliness, and Transparency in
the Release of LGU Shares in National Government Revenues and Grants
1. IRA release to LGUs amounting to P183 Accomplished. Local budget memorandum (LBM) no. 52,
million verified in 2007 issued on 5 January 2007, authorized the distribution of the
IRA share of LGUs amounting to P183 million.
2. Issuance of the LBM for indicative IRA Accomplished. LBM no. 57, issued on 11 July 2008
shares of LGUs (for the ensuing budget certifies LGU shares of IRA for distribution in 2009 at
year) by June of the current year to guide P210.7 billion. LBM are issued to guide the preparation of
LGUs in preparation of their budget for the LGU budgets for the following year.
ensuing year.
3. Further streamlining of the process for Accomplished. DOF-DBM-DILG-DENR joint
releasing the special shares of LGUs in memorandum circular no. 2009-1, issued on 31 March
mining taxes by the BIR, Bureau of 2009, streamlined the documentary procedure to just one
Treasury, and DBM. document and delineated agencies‟ responsibilities in
promptly releasing LGU shares of mining taxes.
Additional trigger. Increase of tax Accomplished. BIR had estimated the LGU share of
revenues released to LGUs from tobacco tobacco taxes collected on foreign tobacco. DBM will
tax collected on foreign tobacco. release these special shares to tobacco-growing LGUs
within the year.
Additional trigger. Release of P178 million Accomplished. In 2008, DBM released P210 million from
as of June 2009 from mining taxes to LGUs mining taxes collected in 2007. As of June 2009, DBM
utilizing the DOF-DBM-DILG-DENR JMC released P170 million from mining taxes collected in 2008
No. 2009-1 to LGUs where mining projects are located.
B. Fiscal Management, Planning, and Public Expenditure Management: Enhancing Efficiency and
Accountability in Financial Management, Planning, and Expenditure Management at the Local
Level
1. Local treasurers‟ manual completed and Accomplished. Local treasury operations manual
distributed to all LGUs completed and distributed to all LGUs.
2. Provinces prepare provincial Accomplished. 23 provinces have prepared the provincial
development and physical framework plan development and physical framework plan and the
and provincial development investment provincial development investment program using the
program using the guidelines for provincial provincial planning guidelines.
and local planning and expenditure
management
3. SRE financial reporting system fully Accomplished. SRE financial reporting implemented by
implemented by provinces, cities, and treasurers at all LGU levels.
municipalities
4.Competency certification system for local Accomplished. Competency certification system for all
treasurers completed and Implemented local treasurers completed and implemented.
C. LGU Performance Measurement and Service Delivery: Enhancing Effectiveness and
Transparency in the Delivery of Critical Public Services at the Local Level
1. 250 LGUs avail themselves of financing Accomplished. Exceeded Target. 270 LGUs availed
for improved service delivery through themselves of financing for investments in environmental
investment in environmental and health and health projects amounting to P3.2 billion,
projects
2. Study on performance-based grants for Accomplished. Study on performance-based grants
LGUs completed (preliminary analytic and design work for the development
of a performance-based grant system for LGUs) completed
in June 2008.
 Appendix 3 23

3. Framework for performance-based grants Accomplished. Exceeded Target. MDFO-PGB has

adopted by MDFO adopted the policy. In addition, the Development Budget
Coordination Committee approved the performance-based
incentive policy on 20 February 2009.
D. Credit financing: Improving LGU Access to Public and Private Sources of Capital for Financing
of Policy Reforms and Development Projects
1. Guidelines issued to allow some LGUs to Accomplished. In 2007 and 2008, DIF approved a request
open depository accounts in private banks from some LGUs, allowing them to open depository
accounts in private banks on a case-by-case basis and
based on conditions provided under the Local Government
code of 1991. DOF department order no. 27-05 issued
guidelines to amend department order no. 32-03, allowing
the non-government Philippine National Bank; Philippine
Postal Savings Bank; Al-Amanah Islamic Bank of the
Philippines; Philippine Veterans Bank; and thrift, rural, and
cooperative banks to act as LGU depository banks. The
case-by-case approach for approval is consistent with
measures to identify risk from moral hazard and the need
to perform diligence on private financial institutions.
2. At least 50 LGUs approved by MDFO- Accomplished. Exceeded Target. 75 LGUs have been
PGB for a PROLEND loan approved for loans for MDG projects.
3. A new financing modality on Disaster Accomplished. Exceeded Target. MDFO has not only
Calamity Fund developed by MDFO developed and approved the new modality of the Disaster
Management Assistance Fund but also implemented it with
a fund allocation of P200 million.
4. Revised income classification system for Accomplished. Revised income classification system
LGUs completed and issued by BLGF completed and incorporated into local government financial
performance monitoring system.
Additional Trigger. Executive order issued, Accomplished. Executive Order No. 809, signed on 9
allowing tier-1 LGUs to borrow directly from June 2009, allows first-tier LGUs to borrow from foreign
foreign sources without a sovereign sources without a sovereign guarantee.
guarantee.
E. Local Own-Source Revenues: Reducing LGU Dependency on the Internal Revenue Allotment by
Developing Buoyant Sources of Revenues at the Local Level
1. Instructions for BIR regional offices for Accomplished. DOF department order no. 9-08 for BIR to
releasing tax information to LGUs issued release tax information to LGUs issued on 26 March 2008.
2. Guidelines on the situs-of-tax rule for Accomplished. Local finance Circular 2-09 issued by DOF
mining firms for levying local business tax for mining firms on situs of local business tax dated 20
issued August 2009.
3. Valuation standards for equipment and Accomplished. Valuation standards for equipment and
machinery issued as an addendum to machinery developed and included as an addendum to the
assessors‟ manual local assessors‟ manual.
4. Valuation training on equipment and Accomplished. 71 LGUs trained on valuation of equipment
machinery completed for 70 LGUs and machinery to date.
BIR = Bureau of Internal Revenue, BLGF = Bureau of Local Government Finance, DBM = Department of Budget and
Management, DENR = Department of Environment and Natural Resources, DILG = Department of Interior and Local
Government, DOF = Department of Finance, IRA = internal revenue allotment; LGU = local government unit,
MDFO = Municipal Development Fund Office, MDG = Millennium Development Goal, PGB = Policy Governing
Board, PROLEND = program lending facility, SRE = statement of receipts and expenditures.
Source: Asian Development Bank.
24 Appendix 4

STATUS OF COMPLIANCE WITH LOAN COVENANTS

Reference in Loan Status of

Covenants Agreement Compliance
Loans 2387 and 2584-PHI
The Borrower shall cause the Program to be LA Section 4.01 (a) Complied with.
carried out with due diligence and efficiency
and in conformity with sound administrative,
financial, local government management, and
governance practices.
In the carrying out of the Program, the LA Section 4.01 (b) Complied with.
Borrower shall perform, or cause to be
performed, all obligations set forth in Schedule
5 to this Loan Agreement.
The Borrower shall make available, promptly LA Section 4.02 Complied with.
as needed, the funds, facilities, services, and
other resources, which are required, in
addition to the proceeds of the Loan, for the
carrying out and continuation of the Program.
The Borrower shall ensure that the activities of LA Section 4.03 Complied with.
its departments and agencies with respect to
the carrying out of the Program are conducted
and coordinated in accordance with sound
administrative policies and procedures.
The Borrower shall maintain, or cause to be LA Section 4.04 (a) Complied with.
maintained, records and documents adequate
to identify the Eligible Items financed out of the
proceeds of the Loan and to indicate the
progress of the Program.
The Borrower shall enable ADB‟s LA Section 4.04 (b) Complied with.
representatives to inspect any relevant records
and documents referred to in paragraph (a) of
this section.
As part of the reports and information referred LA Section 4.05 (a) Complied with.
to in Section 7.04 of the Loan Regulations, the
Borrower shall furnish, or cause to be
furnished, to ADB all such reports and
information as ADB shall reasonably request
concerning the implementation of the
Program, the Program Cluster and the PPMF
including the accomplishment of the targets
and carrying out of the actions set out in the
Policy Letter and Policy Matrix.
In the reports furnished under (a) above shall LA Section 4.05 (b) Complied with.
be used at the completion of the Program
Cluster to produce a comprehensive report on
the overall impact of the policy reforms
described in the Policy Letter and Policy
Matrix.
 Appendix 4 25

Reference in Loan Status of

Covenants Agreement Compliance
The LGFBRP Committee shall meet quarterly LA Section 5.02 Complied with.
to monitor progress and oversee the (Both Loans)
implementation of the policy actions detailed in
the Policy Letter and Policy Matrix, and
provide guidance and direction to the
Executing and Implementing Agencies. The
Committee may invite ADB to participate in its
meetings as an observer.
The Borrower shall ensure that the policies LA Section 5.03 Complied with.
adopted and actions taken prior to the (Both Loans)
date of this Loan Agreement under the
Program as described in the Policy Letter and
the Policy Matrix, continue in effect.
The Borrower shall keep ADB informed of, and LA Section 5.04 Complied with.
the Borrower and ADB shall from time (Both Loans)
to time exchange views on sector issues,
policy reforms and additional reforms that may
be considered necessary or desirable,
including the progress made in carrying out
policies and actions set out in the Policy Letter
and the Policy Matrix.
The Borrower shall promptly discuss with ADB LA Section 5.05 Complied with.
problems and constraints encountered (Both Loans)
during implementation of the Program and the
PPFM and appropriate measures to overcome
or mitigate such problems and constraints.
The Borrower shall keep ADB informed of LA Section 5.06 Complied with.
policy discussions with other multilateral or (Both Loans)
bilateral agencies that have implications for
implementation of the Program and the PPFM
and shall provide ADB with an opportunity to
comment on any resulting policy proposals.
The Borrower shall take ADB‟s views into
consideration before finalizing and
implementing any such proposals.
The Borrower shall ensure that the LA Section 5.07 Complied with.
Counterpart Funds are used to finance the (Both Loans)
local currency costs relating to the
implementation of the Program and other
activities consistent with the objectives of the
Program and shall provide the necessary
budget appropriations to finance the structural
adjustment costs relating to the
implementation of reforms under the
Program.
The Borrower shall ensure that DOF: LA Section 5. 08 Complied with.
(i) reports to ADB based on semiannually (Loan 2584)
reporting on impact of the Program following
the Program Period through periodic meetings
26 Appendix 4

Covenants Reference in Loan Status of

Agreement Compliance
with the Implementing Agencies; and (ii) as
needed, holds consultative meetings with
stakeholders and development partner
community to solicit their feedback on
emerging regulations involving LGUs and the
impact of the Program Cluster and PPMF
implementation.
The Borrower and ADB shall jointly assess the LA Section 5. 09 Complied with.
impact and evaluate the benefits of the (Loan 2584)
Program within six months after the Effective
Date, in accordance with the Program
Performance Management System set up
under Subprogram 1, and comprising
performance indicators as agreed between the
parties. DOF shall be responsible for
maintaining all monitoring data and evaluating
benefits of the Program. The Borrower shall
cause the DOF and Implementing Agencies to
submit a Program completion report to ADB
within twelve months after the Effective Date
that assesses compliance with, and impact of,
the agreed actions under the Program and
Program Cluster. The report, showing the
overall outcomes and output results of the
Program Cluster and taking into account the
interim completion report prepared for
Subprogram 1 will be prepared and submitted
to ADB. The Borrower shall encourage partner
donor agencies, business groups and other
sector stakeholders to
support monitoring of the reforms and agreed
actions under the Program Cluster and the
PPMF.
 Appendix 5 27

Post-LGFBR Program Monitoring Framework

Fiscal Management, LGU Performance
Planning, and Public Measurement and Local Own Source
Expenditure Management Service Delivery Credit Financing Revenues
1. Harmonization of the 5. Implementation of the 8. Guidance available to 13. Transparency of local
capacity development performance-based ensure that ODA funds business taxpayer
activities for LGUs in incentive policy included are used in a way that database improved
planning, revenue in the design of at least does not crowd out
mobilization, one sector program with private sector 14. Qualification standards
expenditure national government financing for local assessors
management, and and ODA funding enforced
budgeting 9. Operational efficiency
6. Use of the Special of MDFO improved 15. Regulation for the
2. Committee for Education Fund establishment of local
Implementation of the improved 10. Loan amount for MDG- economic enterprises
competency related projects improved
certification system for 7. Efficiency and increased
local treasurers transparency of
officially named and performance data for at 11. PROLEND policy
convened by BLGF least 90% of provinces, improved
cities, and municipalities
3. Measures taken to improved. 12. BLGF creditworthiness
improve personal rating system available
expenditure policies in on the internet
LGUs

4. Improved training skills

available for the
comprehensive
development plan
BLGF = Bureau of Local Government Financing (Department of Finance); LGU = local government units;
MDFO = Municipal Development Fund Office; ODA = official development assistance; PROLEND = program lending
facility.
Source: Asian Development Bank.
 28 Appendix 6

QUESTIONNAIRE

PROJECT COMPLETION REPORT

Government Survey Results

LOCAL GOVERNMENT FINANCE AND BUDGET REFORM CLUSTER (LGFBR)

SUBPROGRAMS 1 & 2

October 6, 2011

(A) We would like to know your views on the RELEVANCE of the Local Government Finance and Budget
Reform (LGFBR) II Cluster (2006 to 2009) to the Government's Economic Priorities

For each of the questions below relevant to your agency, please rank them in terms of their relevance in
supporting the economic priorities of the Government of the Philippines both at the time of formulating the LGFBR
in 2006 and its completion in 2009 (with 1 being not relevant at all and 5 being highly relevant)
(1) (2) (3) (4) (5)
At the time of formulating the Program in 2006
(1) Component 1.a: Improved completeness, timeliness, 
and transparency in the release of IRA and PDAF
(2) Component 1.b: Improved release of LGU special 
shares in national wealth and other taxes
(3) Component 2.a: Streamlined oversight and capacity 
development functions of national government agencies
(4) Component 2.b: Improved fiscal management capacity 
of LGUs
(5) Component 2.c: Improved implementation of the 
GPRA
(6) Component 3.a: Enhanced financing options to 
improve service delivery in key sectors
(7) Component 3.b: Improved implementation of devolved 
functions
(8) Component 3.c: Enhanced effectiveness of existing 
LGU performance monitoring systems
(9) Component 4.a: Increased LGU access to private 
sources of financing
(10) Component 4.b: Increased availability of development 
financing for LGUs
(11) Component 4.c: Improved availability of financial 
information on LGUs
(12) Component 5.a: Enhanced LGU‟s ability to generate 
revenues from local business taxes
(13) Component 5.b: Improved collection of real property 
taxes
At the completion of the Program in 2009
(1) Component 1.a: Improved completeness, timeliness, 
 Appendix 6 29

and transparency in the release of IRA and PDAF

(2) Component 1.b.: Improved release of LGU special 
shares in national wealth and other taxes
(3) Component 2.a: Streamlined oversight and capacity 
development functions of national government agencies
(4) Component 2.b: Improved fiscal management capacity 
of LGUs
(5) Component 2.c: Improved implementation of the 
GPRA
(6) Component 3.a: Enhanced financing options to 
improve service delivery in key sectors
(7) Component 3.b: Improved implementation of devolved 
functions
(8) Component 3.c: Enhanced effectiveness of existing 
LGU performance monitoring systems
(9) Component 4.a: Increased LGU access to private 
sources of financing
(10) Component 4.b: Increased availability of development 
financing for LGUs
(11) Component 4.c: Improved availability of financial 
information on LGUs
(12) Component 5.a: Enhanced LGU‟s ability to generate 
revenues from local business taxes
(13) Component 5.b: Improved collection of real property 
taxes

(B) We would like to know your views on the EFFECTIVENESS of the LGFBR
in achieving the Program's outcome.
For each of the questions below, please rank them in terms of the Program's effectiveness in achieving the
Program's outcome (with 1 being not effective at all at and 5 being highly effective)

(1) (2) (3) (4) (5)

Outcome: LGU avail of enhanced resources and 
capacities to plan and budget for the general welfare of
their constituent communities in a transparent and
accountable way
Through: enhanced efficiency and accountability in 
financial management, planning, and expenditure
management at the local level
Through: enhanced effectiveness and transparency in 
the delivery of critical public services at the local level
Through: improved LGU access to public and private 
sources of capital for financing of policy reforms and
development projects
Through: developed additional sources of revenues at 
the local level (thereby reduced dependency on the IRA
 30 Appendix 6

The Post-Program Policy/Monitoring Framework 

(C) We would like to know your views on the EFFICIENCY of the LGFBR in
achieving the Program’s outcome and outputs
For each of the questions below, please rank them in terms of the Program's efficiency in supporting the
Program's outcome and outputs (with 1 being not efficient at and 5 being highly efficient)
(1) (2) (3) (4) (5)
(1) Did ADB efficiently manage the LGFBR program 
related to carrying out periodic policy reviews and meeting
loan processing schedules?
(2) Did ADB efficiently manage the LGFBR program 
related to providing timely policy dialogue on LGFBR
policy triggers and milestones?
(3) Did ADB efficiently manage the LGFBR program 
related to providing appropriate technical assistance?
(4) Was ADB responsive within the LGFBR framework to 
changing macroeconomic circumstances and priorities of
the Government? Were these changes appropriately
reflected in the LGFBR subprograms?
(5) Did ADB efficiently coordinate with other development 
partners
(6) Overall how would you rank ADB management of the 
LGFBR in terms of efficiency

(D) We would like to know your views on the SUSTAINABILITY of the LGFBR
in terms of Program outcome and outputs

For each of the questions below, please rank them in terms of sustainability of the Programs' outcome and
outputs after the completion of the Program in 2009 (with 1 being not sustainable at all at and 5 being highly
sustainable).
(1) (2) (3) (4) (5)
(1) Outcome: enhanced LGU resources and capabilities to 
plan and budget for the general welfare of their
constituent communities in a transparent and accountable
way
(2) Output 1: enhanced efficiency and accountability in 
financial management, planning, and expenditure
management at the local level
(3) Output 2: enhanced effectiveness and transparency in 
the delivery of critical public services at the local level
(4) Output 3: improved LGU access to public and private 
sources of capital for financing of policy reforms and
development projects
(5) Output 4: developed additional sources of revenues at 
the local level (thereby reduced dependency on the IRA
 Appendix 6 31

(E) LESSONS LEARNED

We would like to know, if we were to do another LGFBR program cluster, what features of the Program design,
structure and or policy priorities would we keep, what would we drop, and what should we add (please list, if any)

Features and priorities to keep

(1) own-source revenues: reducing LGU dependency on Central Transfers
(2) accountability and transparency systems
(3) adherence to existing policies and procedures
(4) alignment with national government priorities
(5)

Features and priorities to drop

(1)
(2)
(3)
(4)
(5)

Features and priorities to add

(1) Harmonization of fiscal accounts/reports by LGUs
(2) Guidelines on Public– Private Partnerships
(3) Rationalized functional and revenue assignments of LGUs
(4) Improvement in intergovernmental transfers to LGUs by incorporating performance and equity
(5) Harmonized/synchronized info system of all initiatives and reforms
(6) Validation system to be established and sustained
(7) Assessment of initiatives and reforms