LGUs to absorb NG programs in 2022

Finance Secretary Carlos G. Dominguez III speaks during a Bloomberg Television interview in Nusa Dua, Bali, Indonesia, on Oct. 11, 2018.I — SEONGJOON CHO/BLOOMBERG

By Beatrice M. Laforga, Reporter

FINANCE Secretary Carlos G. Dominguez III on Monday told local government units (LGUs) to prepare to absorb programs of the National Government (NG) in 2022, when the Supreme Court (SC) ruling that expanded their share of internal revenue allotments (IRA) will take effect.

“The Supreme Court ruling on the Mandanas case is scheduled for implementation in 2022. The LGUs, therefore, must prepare themselves to effectively assume new responsibilities. The LGUs and the National Government must plan and prepare for the seamless transfer of devolved functions, services, and facilities,” Mr. Dominguez said during a webinar organized by the Union of Local Authorities of the Philippines (ULAP).

Economic managers expect the Supreme Court’s ruling on the Mandanas-Garcia petition to cost the National Government P234.4 billion or equivalent to 0.92% of gross domestic product (GDP) once it takes effect in 2022. The ruling clarified that the IRA share of LGUs should be coming from all national taxes collected and not just from the Bureau of Internal Revenue (BIR).

Mr. Dominguez said the huge increase in IRAs should help the local governments boost their economies and recover from the impact of the coronavirus pandemic.

“Even as we see signs of improvement in the public health situation, we will still rely on local governments for continued monitoring and contact tracing to help keep infections in check. We will also count on LGUs to help revive economic activity in the coming months. The National Government will work with you to keep your constituents healthy and your local economies functioning,” he said.

In a report released last month, the Development Budget Coordination Committee (DBCC) said it is looking to shift the implementation of various programs, activities and projects worth P404.5 billion from the NG to LGUs in response to the SC decision.

Hermilando I. Mandanas, the former governor and legislator from Batangas province who filed the original petition, expressed concern over the second source of higher IRA share based on the same SC ruling, which should be released sooner than the one scheduled in 2022.

“That would be able to increase the funds available to local governments to assist in COVID-19 (response) which we need right now, and it would increase our ability to borrow which I believe you (the Finance chief) are encouraging,” Mr. Mandanas said.

The fiscal position of LGUs have also been affected by the decline in tax collections and increased pandemic expenses according to Bureau of Local Government Finance (BLGF) Executive Director Niño Raymond B. Alvina.

“Initially, LGUs can fund P30.2 billion to P56.2 billion out of their projected funds for the full year. But for one quarter alone (this year), only P7.5 billion to P14 billion may be readily available and this funding source is not evenly distributed on a per LGU basis, due to differences in the nominal IRA, local revenue base and population,” Mr. Alvina said in his presentation during the same webinar.

In mid-April, the National Government released a one-time financial assistance worth P30.8 billion to cities and municipalities and P6.2 billion to provinces to help them respond to the crisis.

Given the economic slowdown’s impact on LGU revenues, Mr. Alvina said they have slashed the target collections to P193 billion for the year from the pre-pandemic goal of P307.08 billion.

The total collections are expected to further decline next year to P102.01 billion coming from a weak base in 2020.

“LGUs are likely to experience a considerable drop in local revenues in 2021, with optimistic recovery in the next two to three years by at least a 10%-increase in collections,” he said.

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Rated Gulf banks can absorb up to $36 billion shock before moving into red: S&P

FILE PHOTO: A general view of Business Bay area, after a curfew was imposed to prevent the spread of the coronavirus disease (COVID-19), in Dubai, United Arab Emirates, March 28, 2020. REUTERS/Satish Kumar/File Photo

May 10, 2020

DUBAI (Reuters) – Rated banks in the Gulf can absorb up to a $36 billion shock before depleting their capital bases, S&P Global Ratings said on Sunday, adding that banks in Bahrain, Oman and the United Arab Emirates are the most vulnerable to increases in cost of risk.

The ratings agency said the relatively strong profits of the region’s rated banks and loan-loss provisions will help them weather the double shock of the coronavirus pandemic and the collapse of oil prices.

The $36 billion shock that S&P estimates banks can absorb is about three times the agency’s calculated normalised losses, “which implies a substantial level of stress,” it said.

S&P said it expected banks’ profitability to suffer in 2020 due to the pandemic and low oil prices.

“This is because financing growth will remain limited, with banks focusing more on preserving their asset-quality indicators than generating new business,” it said, adding it expected asset quality will deteriorate and cost of risk would rise.

S&P assumed COVID-19, the disease caused by the new coronavirus, will be contained and non-oil activity will resume by the third quarter. If not, banks’ profitability will suffer further and some will see losses, it said.

“In our view, the support measures enacted by GCC governments will at best delay this problem, in the absence of additional measures,” it said, though it added banks’ low cost base and potential new cost-saving measures next year could benefit them.

While some banks have taken measures to preserve their workforces, job cuts “will probably come next year if the environment doesn’t improve,” S&P said.

S&P said Saudi banks are the most resilient, while Kuwait has the highest capacity to withstand higher cost of risk and Bahrain, Oman and UAE are the most vulnerable to such costs.

It added that the $36 billion figure is not evenly distributed. A few banks have more capacity to absorb losses than others, which is not correlated with the lender’s size.

(Reporting by Yousef Saba; Editing by Toby Chopra)

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