How ADB plans to help reform Philippine local government

    Philippine President Benigno S. Aquino III with Asian Development Bank Takehiko Nakao at the international financial institution’s headquarters in Manila. An ADB project aims to help the country on the path of efficient public financial management and sustainable local development. Photo by: ADB / CC BY-NC-ND

    Local government units in the Philippines now have high hopes of boosting their tax collection systems and overall development as the Asian Development Bank has committed to helping the country review its local government code.

    The review is the flagship project of the Manila-based financial institution’s $250 million local government and fiscal decentralization reform program, which hopes to move the Philippines on the path toward efficient public financial management and sustainable local development — in line with the national government’s six-year development roadmap until 2016.

    “There is widespread agreement among stakeholders that the LGC has structural deficiencies that need to be addressed through a government-led review,” Juan Luis Gomez, ADB’s senior public management specialist, told Devex. “The code needs clarity in functional assignments, good use of local revenues, and proper transfer mechanism of resources.”

    Gomez added that the law actually mandates and instructs the government to review the code every five years, “but none has taken place since its enactment” making the review timely and essential.

    According to the official project document, the LGU code reform “aims to improve service delivery in the Philippines by assisting the development of efficient and transparent local governments within an adequate and equitable fiscal framework.”

    The priorities are:

    1. Promotion of inclusive growth and employment generation.

    2. Improvement of governance and human development standards.

    3. Macroeconomic and fiscal sustainability.

    4. Reduction of local disparities in access to services to aid the national government’s goal of inclusive growth and poverty reduction.

    The country’s local government code was first crafted over twenty years ago, in 1991. While it has given LGUs enough elbow room to pursue, approve and mandate certain ordinances and development projects on their own throughout the years, several provisions of the code have become outdated or inefficient, especially fiscal management and coordination.

    One can argue for and against giving Philippine LGUs more leeway to pick their own development priorities in a more grassroots manner. For instance, the Asia Foundation suggests “the law has yet to fulfill its promise of building self-reliant communities that contribute to national development,” although things are slowly changing in the right direction.

    LGUs currently account for about 25 percent of public expenditure and are key actors in providing basic social services in critical areas for development including health and education given their proximity with the people. Gomez added that on the revenue side, “small changes to the revenue provisions of the code could easily lift LGU’s own revenue collection by more than $1 billion per year,” cutting their dependence to the national government’s appropriation — which can be delayed at times — and contribute to fiscal stability.

    That’s why ADB’s program wants to help LGUs — through amendments in the code — better plan social service delivery and other expenditures, execute efficient revenue generation and innovation, and promote local and national government coordination. It will also support disaster preparedness, environmental management and performance measurement instruments at local level.

    “The review will also look at proposals to encourage interlocal cooperation and will propose changes to the requirements in the code for new LGU formation,” Gomez said.

    The review will be spearheaded by the country’s interior and local government department and a team of experts from the bank, which will also receive inputs from consultations through the coordinating committee on decentralization as well as regular dialogue with all relevant stakeholders on specific policy issues.

    The project hopes to establish an intergovernmental fiscal system fit for the inclusive growth goal, an adequate and equitable local resource frameworks for fiscal sustainability, a strengthened local public financial management systems, and the promotion of transparent, accountable and participatory local governance in the Philippines.

    Do you think this initiative to reform decentralization processes can work in other developing countries with similar governance challenges? Please let us know by leaving a comment below or sending an email to

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    About the author

    • Lean Alfred Santos

      Lean Alfred Santos is a former Devex development reporter focusing on the development community in Asia-Pacific, including major players such as the Asian Development Bank and the Asian Infrastructure Investment Bank. He previously covered Philippine and international business and economic news, sports and politics.