The Development Bank of the Philippines (DBP) is establishing a Local Government Unit (LGU) credit rating system in collaboration with the Department of Finance (DoF), state regulators and multilateral credit institutions.
The proposed rating system will incorporate securities fluctuation as a sustainable financing option for local development projects, according to the president and executive director of DBP, Emmanuel G. Herbosa.
Specifically, it will provide the bond market with reliable risk indicators of individual LGU bonds, as well as information on outstanding bond issues that would help increase confidence and improve the risk appetite of potential investors.
“DBP hopes to establish an LGU rating organization, as well as credit rating agencies that assess the viability of investments in relation to the likelihood of default,” he explained.
“Once the LGU Bond Market gains a firm footing, we expect a significant increase in development initiatives across the country, as it provides a substitute financing mode.”
Some 81 provinces, 144 cities, 1,490 municipalities and more than 42,000 barangays across the country are under administrative supervision by the Executive Branch through the Department of Interior and Local Government and the DoF.
DBP’s vast experience with the LGU sector would help promote the LGU bond market as an essential financial resource to finance essential infrastructure and social development projects.
Typically, these projects depend on appropriations from the National Government through the Distribution of the Federal Revenue.
Through the credit rating system, LGUs would be able to diversify sources of funds based on needs, revenue generation capacity and financial maturity, said Herbosa.
“DBP would establish a viable, flexible, pragmatic and forward-looking risk model,” he said.
“Since all LGUs are rated effectively, DBP can easily align its marketing efforts and provide strategic support, especially for those in need of financial assistance.”
“We will continue to explore innovative and sustainable financing solutions so that communities can continue to recover and rebuild from the paralyzing effects of the public health crisis,” he promised.
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