ADB gives IRA a push

The devolution of revenue that was required under the so-called Mandanas ruling of the Supreme Court (SC), the judicious use of funds, through the increased internal revenue allotment (IRA), is a major concern.

The Asian Development Bank (ADB), however, through a $500-million loan, is lending its hand to strengthen transparency.

The loan also supports the Public Financial Management Reform Program which aims to digitalize related systems and encourage broader partnerships between local government units and the private sector, especially in projects related to climate change mitigation.

In its 3 July 2018 decision, the SC granted the Mandanas-Garcia petition, declaring unconstitutional the phrase “internal revenue” appearing in Section 284 of the Local Government Code (LGC) of 1991.

In effect, the deletion of the phrase meant the determination of the just share of the LGUs should not be based solely on national internal revenue taxes but on all national taxes.

The SC further ordered the Secretaries of Finance and Budget and Management, the Commissioners of Internal Revenue and Customs, as well as the National Treasurer to include all collections of national taxes in the computation of the base of the just share of the LGUs, based on the ratio provided in the now-modified Section 284 of the LGC.

The program signifies the Philippine government’s commitment to build an open government founded on the principles of efficiency, transparency, accountability, and good governance,” ADB Philippines Country Director Pavit Ramachandran said.

ADB’s program will help LGUs distribute and track funds effectively under the Mandanas ruling which raised LGUs’ share from the national revenue by around 38 percent, or P263 billion, to fund projects in agriculture, health, social welfare, infrastructure, and tourism.

Under the program, ADB and other development partners will conduct a public expenditure and financial accountability assessment in the Philippines to help the country manage its finances more effectively.

IPO steps ‘idiosyncratic’

In the Capital Market Review of the Philippines 2024 undertaken by the Organization for Economic Cooperation and Development (OECD), made up of the world’s most developed nations, it was indicated that the Philippine listing process is “idiosyncratic.”

The listing procedure tends to create uncertainty in that it requires underwriters to allocate at least 20 percent of an initial public offering to stock market trading participants and 10 percent to local retail investors.

According to the report, the requirements can lead to inefficiencies when brokers or retail investors are unable to fully subscribe allocated shares, leaving investment banks with unsold shares.

In 2021, retail investors only subscribed to 1.4 percent of shares, much lower than the 10 percent assigned, based on Philippine Stock Exchange data.

More recently, however, the PSE noted that through the use of the PSE Easy digital application, the retail allocation has generally been well-subscribed.

In addition to the financial implications for underwriters, allocations not fully subscribed could negatively affect the share price and reduce the liquidity of the stock if the underwriter has to hold on to a large block of IPO shares.