Local government units (LGUs) with loans from the Land Bank of the Philippines (LandBank) can expect to receive an interest rate subsidy of 2 percent annually.
In a statement on Tuesday, the state-run lender said the subsidy was part of the government’s measures to help communities bounce back from the impact of the coronavirus disease 2019 (Covid-19) pandemic.
The subsidy will apply to LGUs’ loans for their response and recovery intervention projects for their constituents, it added.
The subsidy is part of the provisions in Republic Act 11494, or the “Bayanihan to Recover as One Act” (Bayanihan 2). In the law, a P1-billion interest subsidy fund is allotted for loans secured by LGUs.
It shall be applied to the loan interest payments of municipal, city and provincial local governments until Dec. 31, 2022, or until the fund is used up.
To extend the subsidy to as many LGUs as possible, a maximum interest subsidy equivalent to P10 million has been set for cities and provinces, and P5 million for towns.
“We strongly encourage our LGUs to make full use of credit facilities subsidized by the national government to bankroll development projects in their respective localities,” LandBank President and Chief Executive Officer Cecilia Borromeo said in the statement.
“This will contribute greatly to reviving local economies and helping the country recover from the impact of the Covid-19 pandemic,” she added.
Qualified LGUs may avail themselves of the subsidy for eligible projects pursuant to the objectives of Bayanihan 2. These include permanent working capital, such as for the purchase of agricultural produce and acquisition of equipment; and construction of facilities for linking of products to the market, such as market infrastructure development and improvement, mobile palengke (wet market), and collection and buying stations.
Local governments with loans for programs and projects that provide basic and support services, social welfare and health care, and other infrastructure activities that aim to bring back the confidence of people and spur local business activities are also eligible for the subsidy.
Loans for these projects shall have a fixed interest rate of 4 percent per annum until the end of 2022, with the remaining 2 percent interest rate to be charged to the local government. The interest rate shall be subject to annual repricing thereafter based on the benchmark rate, plus the applicable credit spread based on credit rating of the borrower, but shall not be lower than 4 percent per annum.
Borrowers may pay their loan up to 15 years, inclusive of a three-year grace period on principal payable based on cash flow.
The subsidy will be made available to local governments with approved accounts under LandBank’s Restoration and Invigoration package for a Self-sufficient Economy toward UPgrowth for LGUs lending program.
Launched in July, the program aims to support LGUs in implementing their local economic recovery plans.