A Study On The Management Of Local Government Debt In Y City

Local Government debt has played an positive role in helping governments weather the economic crisis and sustain steady economic development. However, in recent years, as the local government debt kept expanding, it has become a prominent problem. People have realized that strengthening local government debt management, preventing debt risks, resolving debt problems are key to the sound, sustained and steady socio-economic development. The study on the management of local government debt is of great significant both theoretically and practically.The local government debt in Y city could be dated back to1991. Over the past2decades and more, it has grown tremendously. Especially under the impact of the international financial crisis, the debt has expanded dramatically since2009.The major platform for Y city’s local government financing is the local financing platform and the major source of capital is bank loans. The bulk of the capital was invested in the municipal construction projects of the city. Given the level of debt ratio, debt servicing ratio, refinancing ratio, and default ratio of Y city, the local government debt of Y city is within controllable scope despite certain risks. The pressure of repayment is reasonable.Y city has taken measures to manage the government debt. However there are still such problems as insufficient basis for borrowing, inadequate managing institutions, lack of regulation, undiversified financing channels, and high dependency of repayment. The author analyzed the cause of these problems from the perspective of institution and mechanism, government function, governance, and external environment. The author contended that the tax sharing system is the origin of these problems; leadership appraisal is the driving force for the escalation of these problems;"soft-restraint of budget" is the barrier that local government debt management should overcome; and dependency on banks and land is the dilemma that local debt management should try to escape from. Targeting at the problems and causes of these problems in local government debt management in Y city, the author suggested the following steps.1. Deepen fiscal and tax system reform, improve the top-level design of such laws as the Budge law and Government Debt Management Law.2. Further transform the government from "care-taker" to "helmsman", define the pattern and format of debt management, establish competent administrative agency of local government debt, and build a network of management in this area.3. Improve governance, change the existing leadership appraisal system, put in place the tenure system of debt responsibility, build information platform for government debt to improve open government. At the same time, to enhance financing capacity and relieve the pressure of repayment for local governments, the financing platform needs to be improved.4. Establish early warning mechanism and effective regulation system. The author built a model explaining the steps how Y city shall set up its early warning mechanism, which included a debt-type-specific solution matrix, a series of indicators for risk warning including ways of calculating the weight and index of each indicator and a process chart of risk warning processing system.5. Coordinate different stakeholders to enhance management of bank loan approval, establish internal accountability system in banks, and foster standardized financing environment.