THE Department of Finance is looking into establishing a credit rating system for local government units (LGUs) to issue their own green bonds and raise funds to finance their own projects, according to a DOF executive.
Finance Assistant Secretary and Spokesman Paola A. Alvarez said on Wednesday this forms part of the DOF’s efforts to help make the local governments more sustainable in preparation for the full devolution of certain functions of the national government to LGUs no later than 2024 as government implements the Mandanas ruling starting this year.
“We are looking into, for example, like a credit rating system for local governments so that moving forward they can float their own green bonds and sustainability bonds and fund their own projects,” Alvarez said during an online forum on green financing.
The devolution of certain functions of the national government to LGUs was done to mitigate the fiscal impact of the Supreme Court’s Mandanas ruling.
The ruling expanded the basis for the computation of Internal Revenue Allotment (IRA). These would include collections not only of the Bureau of Internal Revenue but also the customs duties collected by the Bureau of Customs, a part of taxes collected in Bangsamoro Autonomous Region in Muslim Mindanao, taxes from the exploitation of national wealth, excise tax on tobacco products and other taxes provided in the National Internal Revenue Code and franchise taxes.
Apart from establishing a credit system for LGUs, Alvarez said the government also wants to work “hand in hand with the private sector,” which they see would have a greater role in the issuance of green bonds as the country aims to reduce its greenhouse gas emissions.
The Philippines has committed to a projected greenhouse gas emissions and avoidance of 75 percent from 2020 to 2030 for the sectors of agriculture, wastes, industry, transport, and energy, as its National Determined Contribution (NDC) to the Paris Agreement.
In terms of investments, Alvarez said they are also looking into how they can use the economic liberalization bills as leverage to mobilize foreign direct investments towards green and sustainable projects.
She added they are also working towards harmonizing policies for climate change and disaster risk mitigation and stressed the need for the government to allocate budget to mitigate disaster risk exposure like having different types of insurance.
Diane Maharjan of the Agriculture, Natural Resources and Environment Staff of the National Economic Development Authority (Neda), also pointed out in the same forum the lack of investors supplying green products and resources in the market.
“For instance, there is a lack of charging stations for solar-powered vehicles that limits mobility as well as there is still a huge cost of setting up water recycling units that convert our dirty water or rainwater into acceptable form for drinking,” Neda Assistant Director Maharjan said.
“Indeed the government’s role in creating right policies and regulations in greening our financial system is critical but we also need to work fast and orient both our public and private capital towards these more sustainable investments so that we can ensure that our projects our environmentally and socially sound,” she added.
Meanwhile, Asian Development Bank Principal Financial Sector Specialist Arup Kumar Chatterjee also said in the same forum that they are working with the Philippine government to assess the funding needs for a blue bond to develop a sustainable fisheries value chain.
“We are working with the Philippine government to develop a blue bond. Feasibility studies are underway,” Chatterjee said.
To promote a conducive environment for green finance markets, Chatterjee also emphasized the need for targeted policy support for low carbon and green bond issuance through providing incentives like reducing the transaction costs.
“Green bonds definitely are an effective instrument to achieve the sustainable development goals,” he further said.
Moreover, Chatterjee also said the local green bond issuance must be aligned with the national climate and infrastructure targets, which can contribute to the country’s sustainable development agenda as well as for the issuer of green bonds to adhere to international best practices.
“If we have these elements in place, there will be an enabling environment to look at opportunities with the just transition offers,” he added.