a primer on eo 809

Front cover

A Primer onExecutive Order 809

Implementing the Financing Policy Framework of Local Government Units (LGUs) by Identifying New Sources of

Funding fro First-Tier LGUs.

Bureau of Local Government FinanceDepartment of Finance

Message from the Executive Director

Table of ContentsI. Why is there a Need for Executive Order 809? 1

II. What is Executive Order 809? 2III. What are the Steps involved in the Application

for and Acquisition of Loans by First-Tier LGUs from Multilateral Financial Institutions under Executive Order 809?

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IV. What are the Mandatory Terms/Financing Policy of the Loan under EO 809?

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V. Who are the Implementing Agencies of EO 809? 8VI. What is the Role of Bureau of Local Government

Finance in the Implementation of EO 809?9

A Primer on Executive Order 809

Bureau of Local Government Finance



Executive Order No.809 (EO 809) was issued to direct the Department of Finance (DOF) and the Department of the Interior and Local Government (DILG) to implement the Local Government Units (LGUs) Financing Policy Framework by identifying new sources of funding for first-tier LGUs in accordance with the Local Government Code. The LGU Financing Policy Framework was formulated in order to expand available credit financing sources for LGUs and free up limited financing sources to LGU with the most need. The LGU Financing Policy Framework prescribes a segmented approach for the credit financing program of LGUs based on the varying levels of credit worthiness and credit need, thus qualifying the most credit worthy LGUs (First-Tier LGUs) to avail not only of government but also non-government, commercial or other sources of capital. In light of the current global financial crisis, there is an urgent need to reallocate the resources of the National Government for its own priority projects and to thus, rationalize and revitalize the sources from which LGUs can fund their projects, pursuant to the powers under the Local Government Code and in accordance with the LGU Financing Framework.

Why is there a need for Executive Order 809?

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EO 809, entitled “Implementing the Financing Policy Framework of Local Government Units (LGUs) by Identifying New Sources of Funding for First-Tier LGUs” under Republic Act No. 7160, otherwise known as the Local Government Code, was signed into law on 9 June 2009 and directs the DILG and the DOF to ensure that qualified First-Tier LGUs are allowed and assisted to directly contract loans from Multilateral Financial Institutions created by multilateral treaties or agreements to which the Philippines is a signatory (MFIs).

The Implementing Rules and Regulations (IRR) of EO 809 were signed by the Secretary of Finance on 1 October 2009 and took effect on 3 October 2009.

A. Sources of Funds for EO 809 Multilateral Financial Institutions (MFIs) which shall be limited to the World Bank (WB), International Finance Corporation (IFC) and Asian Development Bank (ADB)

What is Executive Order 809?

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B. Coverage

1. Who are eligible to avail of funds under EO 809?

First-Tier LGUs or provinces, cities or municipalities with a minimum of 60% of its Average Regular Income (ARI) and has sustained this level of revenue (income) mix for a three-year period prior to MFI borrowing

2. How can a project qualify under EO 809? √ The project should be developmental in nature in accordance with approved local development plans and public investment programs. √ The project to be financed by the MFI should be included in the Annual Investment Plan of the LGU. √ The projects to be financedshould not be projects that the domestic private sector can easily support. They can be projects that require huge investments or long repayment periods. They can be projects that have high social and environmental benefits but whose economic benefits cannot be realized in the short to medium term or are not yet assured.

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What are the steps involved in the application for and acquisition of loans by first-tier LGUs from Multilateral Financial Institutions under Executive

Ordert 809?

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STEP 1 The First-Tier LGU shall secure a certificate from the BLGF confirming that such LGU is a First-Tier LGU.

To secure the certificate, the First-Tier LGU must submit a Statement of Receipts and Expenditures (SRE) covering the three-year period immediately preceding the date of the application for the proposed MFI borrowing.

Step 2 The First-Tier shall secure a certificate of Net Borrowing Capacity (NBC) and Net Debt Service Ceiling (NDSC) from the BLGF confirming that the First-Tier LGU has sufficient capacity to enter into and service the loan with the relevant MFI, and that the amount of the loan to be secured by the First-Tier LGU will not exceed the applicable Maximum Cumulative Debt Ceiling (MCDC).

To secure the certificate, the First-Tier LGU must submit the following: • Letter request from the duly elected and incumbent local chief executive identifying the MFI from which the LGU intends to secure a loan and the purpose of the loan;

• Pre-closing General Fund Trial Balance and Statement of Income and Accountant’s Report for the last three years duly certified/audited by the local auditor;

• Certification by the duly appointed and incumbent Treasurer of the LGU on the existence/absence of loan/s by LGU. If the LGU has such loan/s, the certification shall include the following details: (i) type of loans/s; (ii) purpose of loan/s; (iii) name of lender/s, (iv) date of approval of the loan/s; (v) date of maturity of the loan/s; (vi) amount approved/released to the LGU; (vii) salient terms and conditions of the loan/s such as interest rate and the number of years within which the loan/s



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will be paid; and (viii) latest balance of the loan/s, i.e. current and arrearages; and

• Such other documentary requirements which may be necessary to evaluate the loan application of the LGU.

STEP 3 The First-Tier LGU shall submit to the BLGF a certificate from its planning and development office duly noted by the local chief executive that the project to be financed by the MFI is included in the LGU’s Annual Investment Plan. STEP 4 Together with the certifications secured from the BLGF, the First-Tier LGU shall submit to the Bangko Sentral ng Pilipinas (BSP) a proposal for approval-in-principle of the loan, identifying the following:

• the MFI from which the loan will be secured;• the purpose for which the loan will be secured;• the date on which the LGU intends to draw down all or part of the loan;• the salient terms and conditions of the loan such as costs and charges, interest rate, tenor, and events of default; and • such other details as may be requested by the BSP

STEP 5 The Sanggunian of the First-Tier LGU must pass a resolution authorizing the local chief executive or his duly authorized representative to negotiate with the MFI on the terms and conditions of the loan agreement and security documents. STEP 6 The Sanggunian of the First-Tier LGu must issue an ordinance authorizing the local chief executive or his duly authorized representative to execute the loan agreement and the security documents. If necessary, ordinances shall be issued to allow the LGU to create the security interests in favor of the MFI. STEP 7 The loan agreement which was duly signed and executed together with the ordinances authorizing its execution shall then be submitted to the BSP for final approval. The BSP approval shall give authority to the MFI to disburse the loan proceeds to the First-Tier LGU in accordance with the terms and conditions of the loan agreement.



√ First-Tier LGU Certification• SRE covering the three-year period immediately preceding the date of the application for the proposed MFI borrowing

√ NBC and NDSC Certification

• Letter request from the duly elected and incumbent local chief executive identifying the MFI from which the LGU intends to secure a loan and the purpose of the loan

• Pre-closing General Fund Trial Balance and Statement of Income and Expenses (Accountant’s Report for the last three years duly certified/audited by the local auditor)

• Certification by the duly appointed and incumbent Treasurer of the LGU on the existence/absence of loan/s by LGU. If the LGU has such loan/s, the certification shall include the following details: (i) type of loans/s; (ii) purpose of loan/s; (iii) name of lender/s, (iv) date of approval of the loan/s; (v) date of maturity of the loan/s; (vi) amount approved/released to the LGU; (vii) salient terms and conditions of the loan/s such as interest rate and the number of years within which the loan/s will be paid; and (viii) latest balance of the loan/s, i.e. current and arrearages; and

• Such other documentary requirements which may be necessary to evaluate the loan application of the LGU.

√ Annual Investment Plan Certification√ BSP Approval-in-Principle√ LGU Resolution to Negotiate√ LGU Ordinance to Execute√ BSP Final Approval

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Preliminary Checklist for Contracting Loan under EO 809



The loan shall be in Philippine Pesos only and the repayment of such loans shall not be denominated in any other foreign currency;

√ The loan shall be on a stand-alone basis without any direct or indirect National Government guarantee; √ The terms of the loan agreement shall be market–based and subject to commercial terms; √ The First-Tier LGU shall not be allowed to use its IRA as security for the loan; √ The loan agreement and security documents shall be entered into directl by the First-Tier LGU through its duly authorized representative, nominee, subsidiary, or instrumentality; and √ The proceeds of the loan shall accrue directly and exclusively to the First-Tier LGU.

What is the mandatory terms/ financing policy of the loan?

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The DILG and the DOF are directed to implement the LGU Financing Framework and ensure that First-Tier LGUs be allowed and assisted to directly contract loans with MFIs. Other agencies of the government, including the Department of Justice (DOJ), Department of Education (DepEd) and the Department of Public Works and Highways (DPWH) are likewise directed to provide and extend full support to the DILG and DOF so as to allow the full and immediate implementation of the LGU Financing Policy Framework.

Who are the implementing agencies of Executive Order 809?

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Unless otherwise designated by the Secretary of the DOF, the BLGF shall have primary authority to monitor the amount of loans accumulated and entered into by the First-Tier LGU contemplated herein and shall be responsible for making periodic reports thereon to the Secretary of the DOF .The First-Tier LGUs accessing loans under EO 809 and MFIs shall be required to submit quarterly reports to BLGF.

What is the Role of the Bureau of Local Government Finance in the implementation of

Executive Order 809?

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BUREAU OF LOCAL GOVERNMENT FINANCE8/F EDPC Bldg., BSP Complex, Roxas Boulevard, ManilaContact Nos.: 5272780/5228768Website: www.blgf.gov.ph

a primer on eo 809

Documents

local government code

tier lgus

local government dilg

national government

credit worthy lgus

lgu financing framework

limited financing sources

lgu financing policy