Municipal bonds eyed to raise funds for LGU projects this year

The government plans to roll out municipal bonds this year to beef-up financing options for local government units, finance officials said Friday.

In a text message, National Treasurer Rosalia de Leon said the Bureau of the Treasury (BTr) “will try” to launch municipal bonds this year.

Back in April, BTr officials said they were already studying the viability of municipal or local government unit (LGU) bonds. De Leon had said municipal bonds could be the tool to finance LGU programs and projects through the capital market, complementing bank financing.

At present, LGUs borrow from state-run banks for their priority projects, mostly infrastructure. In the first half of 2022, 111 LGUs borrowed a total of P19.7 billion.

In an economic forum organized by The Manila Times, Finance Undersecretary Zeno Ronald Abenoja noted that the Bangko Sentral ng Pilipinas (BSP) and the Bureau of Local Government Finance (BLGF) had  in the past years simplified and streamlined bank financing processes for LGUs.

Abenoja said the Department of Finance (DOF) was not discounting bonds as a financing tool for LGUs as well.

“Any suggestions on how to improve their access to financial markets and, also  the efforts to strengthen the ability of local governments to manage their finances, craft and design development plans should  be given emphasis,” he said,

In early 1995,  state-run think tank Philippine Institute for Development Studies (PIDS)  has recommended the development of a local government bond market in the country.

The BTr was also looking at the possibility of increased foreign participation in the domestic bond market.

“We have just about 1.5-percent foreign holdings here [in the Philippines] as of March. I guess what holds us back  is really the withholding tax. There’s a pending legislation to reduce the final withholding tax [on interest income] from 20 percent to 15 percent,” Deputy Treasurer Erwin Sta. Ana said in April, referring to the passive income and financial intermediary taxation act (Pifita) which President Marcos and Finance Secretary Benjamin Diokno wanted passed into law by the 19th Congress.

The BTr also plans to introduce an “amortizing bond” this year to maintain demand from government securities eligible dealers (GSEDs) who are wary of long debt exposure amid climbing interest rates.

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