net debt service ceiling and borrowing capacity of local ... · net debt service ceiling and...

D E PA R T M E N T O F F I N A N C E

BUREAU OF LOCAL GOVERNMENT FINANCE

Net Debt Service Ceiling and Borrowing Capacity of Local Government Units

• Attached agency of the DOF

• Supports the DOF in its mandate to

“supervise the revenue operations of all

local government units”

The Bureau of Local Government Finance

• Central Office in Manila, with 15 Regional Offices

• Mandated to “develop and promote plans and

programs for the improvement of resource management

systems, collection enforcement mechanisms and credit

utilization schemes at the local levels”

• Issues Certificate of Net Debt Service Ceiling (NDSC)

and Borrowing Capacity (BC) to LGUs

• Sec. 296 of LGC: Basic policy that LGUs

may create indebtedness and avail of credit

facilities

• Art. 403 of LGC IRR: DOF is mandated to

render technical assistance to any LGU in the availment

of credit facilities, flotation of bonds, contracting of loans

and issue guidelines for the purpose

• Sec. 324 of LGC: Appropriations of 20% of the LGU’s

regular income for debt servicing

• Government regulates through ex ante controls:

1. Securing the Certificate of Net Debt Service Ceiling

and Net Borrowing Capacity from the BLGF

2. Favorable Monetary Board opinion from the BSP

Legal Basis of Certification

• Department Order No. 054-2016: DOF order

prescribes the updated and streamlined guidelines

governing the issuance of Certificate of NDSC and BC

(“Certificate) to all LGUs.

Legal Basis of Certification

• Local Finance Circular (LFC) No. 1-2000, dated 19 January 2000: issued to enhance the access of all LGUs to credits and other forms of indebtedness.

• LFC No. 01-2012: Amended the previous LFC, and released on 16 April 2012, to ensure a more accurate and appropriate evaluation of the maximum borrowing and debt servicing capacities of all LGUs.

• LFC No. 01-2014: Issued on April 22, 2014 for 171 LGUs affected by Typhoon Yolanda, from 12 to 4 requirements, and extending the validity by 1 year

DOF Policies on LGU Loan Certification

LGU Loan Application Process

Evaluate LGU request

and supporting

documentary

requirements

Local Government Unit (LGU) Lending Institution Bureau of Local Government Finance (BLGF) Bangko Sentral ng Pilipinas

Submit Letter of Intent and negotiate

with the lending institution

Submit to BLGF a written request for

certification of LGU Net Debt Service

Ceiling and Borrowing Capacity, with

complete supporting documents pursuant

to DOF Local Finance Circular No 01-2012

Local Council, through a

Resolution/Ordinance,

authorizes the Local Chief

Executive to negotiate and

contract loans and other

forms of indebtedness

Pre-Evaluation/Setting of

Terms and Conditions

BLGF-RO BLGF-CO

Documents

Complete/

Compliant?

Submit the required

additional documents

No

Yes

Evaluate financial reports

of the LGU

Compute preliminarily

LGU Net Debt Service

Ceiling and Borrowing

Capacity (NDSCBC)

Re-negotiate with the lending

institution for lower interest

rate, longer tenor, or consider

other lending institutions, then

re-submit to BLGF

Proposed Loan

Higher than BLGF

Certification?

Yes

No

Submit to BSP a written request for

Monetary Board Opinion

Submit to BLGF-CO all documentary

requirements and the preliminary

computation for the issuance of

certificate of NDSCBC

Final computation and

issuance of certificate

of NDSCBC

Evaluate LGU request

and supporting

documentary

requirements

Monetary Board renders

Opinion on the Monetary

Balance and Payments

implications of the proposed

LGU borrowing, per BSP

Circular No.769 s. 2012

Submit to the Lending Institutions

the BLGF Certification, MB Opinion

and Other Requirements

Approval and Signing of

Loan Agreement with the

LGU

Release of Loan

Record receipt of Loan Proceeds

and prepare borrowing reports for

submission to BLGF-RO and BSP

Receive LGU Post Borrowing

Report Receive LGU Post Borrowing

Report

1. Letter request from the Local Chief Executive indicating: - The lending institution where to apply for a loan;

- Terms and condition of the proposed loan; and

- The purpose of the loan.

2. Certification of existing of loan/s duly certified by the Local

Treasurer with the following details: • Types of loans & other obligations contracted;

• Purpose of the loans & other obligations contracted;

• Name of the lending institutions;

• Date of approval & maturity;

• Terms & conditions (interest rate & number of years to pay);

• Remaining balances of loans and other obligations; and

• Annual amortization schedules (segregating the principal from the

interest) issued by the lending institution.

Streamlined Documentary Requirements for Certification

3. COA Annual Audit Certificate for the past 3 fiscal years showing no

adverse finding against the LGU, which is supported by the following year-

end financial reports: • Pre-closing trial balance (general fund);

• Detailed Statement of Financial Performance

4. Certification issued by the lending institution stating that it shall not

require LGU deposits as compensating balance for the loan if such lending

institution is not (1) not an authorized government depository bank or (2) an authorized

government bank required to obtain the prior approval of the Department of Finance as

provided under the DOF Department Order No. 27-05 (Banks other than LBP and DBP);


1. Letter request from the Local Chief Executive indicating:

- The lending institution where to apply for a loan;

- Terms and condition of the proposed loan; and

- The purpose of the loan.

2. Certification of existing of loan/s duly certified by the Local

Treasurer with the following details:

• Types of loans & other obligations contracted;

• Purpose of the loans & other obligations contracted;

• Name of the lending institutions;

• Date of approval & maturity;

• Terms & conditions (interest rate & number of years to pay);

• Remaining balances of loans and other obligations; and

• Annual amortization schedules (segregating the principal from the

interest) issued by the lending institution.

Certified true copy of declaration.


- LGUs affected by Natural and/or Man Made Disaster

• Certifies the amounts pertaining to:

• Net Debt Service Ceiling (NDSC)

• Borrowing Capacity (BC)

• Terms of the loan (period, interest, grace period, etc.)

• Name of lending institution

• Purpose of the loan

• Certificate number and date issued

• Notes on the certificate

Features of the Certificate

• Debt Service Ceiling (DSC)

• 20% x Annual Regular Income (ARI)

• Where ARI is the average previous 3-year locally

sourced income + other shares from national taxes

based on COA data, + actual annual IRA based on

DBM data

• Net DSC (NDSC)

• DSC – All amortizations payable during the year

• Borrowing Capacity (BC)

• NDSC x Annuity Factor

Computing the NDSC and BC

THANK YOU visit www.blgf.gov.ph