MANILA, Philippines – The World Bank said the proposed P58-billion Local Government Support Fund (LGSF) in the 2027 national budget could help power regional development, but recommended tying allocations to actual project results and encouraging local governments to invest together, amid concerns the fund could become a source of political patronage.

Makiko Watanabe, the World Bank’s lead urban specialist for East Asia and the Pacific, said the Philippine government could adopt performance-based or results-based financing to improve accountability and reward local government units (LGUs) that deliver.

“The short answer is, yes, we believe that LGSF can support genuine regional development so long as obviously it’s effectively utilized,” Watanabe said when asked by Rappler during the launch of the World Bank’s From Cities to Corridors report on Tuesday, October 27.

She suggested that allocations be made “performance-based or results-based” rather than set in advance, and that funding encourage “inter-LGU type of investments” rather than isolated projects.

These could include shared transportation and digital infrastructure, as well as disaster resilience projects that have spillover benefits beyond a single municipality or city.

World Bank Philippines division director Zafer Mustafaoğlu likewise emphasized the need for accountability, efficient spending, and timely project completion, while suggesting too that authorities should consider the economic potential of neighboring LGUs when allocating resources.

The proposed LGSF has drawn scrutiny over concerns that it could be used for discretionary spending and political patronage. Senate finance committee chairperson JV Ejercito has questioned the criteria for distributing the more-than-P58-billion fund and called for safeguards to ensure that allocations address local development needs rather than reward political allies. Senate President Sherwin Gatchalian also said that the LGSF needed to be transparent to promote good governance.

Issues in local project funding

The World Bank’s latest report also identifies weaknesses in how local projects secure funding.

Only about 30% of investment proposals endorsed through regional development councils receive funding in a given budget cycle, which may create “uncertainties among LGUs about which of their endorsed priorities will receive the national government support,” the World Bank report said.

It also notes that projects outside local annual investment plans (AIP) can receive funding when they have political backing, while planned projects may go unfunded.

“While AIP is a standard vehicle for investment planning, [focus group discussion] shows that projects are also budgeted outside the AIP when there is political support, whereas AIP-listed items go unfunded when local priorities do not align,” the World Bank said in its report.

Beyond the allocation process, many LGUs struggle to spend the funds they already have. Capital investments account for only about 15% of annual LGU expenditure, while poor project preparation and procurement add to delays.

This has left local governments sitting on cash reserves, with large urban LGUs holding an average of P9,263 per person in year-end cash on hand balances in 2023, funds that the World Bank said could have been better used to address infrastructure and service needs.

The report’s main recommendation is to shift away from individual LGU support to what it calls interconnected “corridor-based” development, with aligned national and local plans and better project implementation capacity. – Rappler.com