With the Local Government Code of 1991, many government projects failed to push through since LGUs lack the institutional and financial resources to steer these inherited projects.

"LGUs need to redefine financing strategies through improved tax administration and enhanced capacities for debt management, credit financing, and LGU bond flotation," said an Asian Development Bank (ADB) report.

Despite the devolution, most LGUs continue to depend on the NG for their income by as much as 80 percent. NG budget allocations account for an even higher 95 percent for poorer provinces in the Autonomous Region in Muslim Mindanao (ARMM). In 2003, LGUs received 22.5 percent of CG revenue collections.

But to be able to push economic growth, LGUs need to harness its financial strength from public-private sector partnerships through domestic and foreign investment incentives and improvement of business registration.

"Fund flow mechanisms from NG to LGUs for both loan and grant are quite weak and introduce uncertainties in planning and budgetting. Regional borrowing prevents LGUs from local or external borrowing, limiting their capacities to undertake own development," ADB said.

LGUs need to strengthen their audit and fiscal controls at their level and at the national oversight agency levels.

ADB has a thrust of partnering with LGUs so as to help take off financial burden from the NG. But LGUs need to improve public resource management, ability to borrow, and investment climate.

One such project supporting LGUs is ADB’s "Development of Poor Urban Communities" which combines city planning with slum upgrading and eradication.

For Mindanao particularly among ARMM’s poorest areas, ADB’s funding support anchors on three things: Sustainable peace as essential to development, improved capacity to use up funding through capacity building, and quick response to a peace agreement.

"The price of war has been high. Five Mindanao provinces are among the country’s 10 poorest," it said.

ADB noted that infrastructure weakness has also been repeatedly stressed as an obstacle to investments in the Philippines, and addressing this will enhance LGUs’ borrowing capacity.

In microfinancing, while microenterprises account for 92 percent of Philippine businesses and 38 percent of employment, these do not have access to funding. Rural banking institutions thus have to improve lending and should be open to foreign investments, ADB said.

"Systems and regulatory frameworks must be put in place to enable microfinancing institutions (MFIs) to capture remittance flows (.6 billion plus) currently outside the formal systems," ADB stressed.

Increased access to savings services nationwide, innovative savings programs, increased formal remittances will mobilize savings. MFIs may also be benefited by a partial credit guarantee facility while a national credit bureau should be created for this.