Research On Risk Prevention And Management Of Local Government Debt

For many years, local governments have promoted economic and socialdevelopment and supported the national macro policy by debt financing. Its contributionlies in: the first is providing financial support to cope with the crisis and disaster; thesecond is providing important support to promote the improvement of people’slivelihood and ecological environmental protection; the third is laying the foundationfor sustainable development of economy and society. However, with more and moredemand for infrastructure and livelihood security, local fiscal funds is relatively limited,leading to the situation that local governments take on a mountain of debt to raise funds.Problems like scale expansion of the local government debt, inadequate debtmanagement, opaque information of the local government debt, the lack of effectivesupervision, and imperfection of the corresponding laws have increased the localgovernment debt risk. The exposed risk of local government debt is not only animportant hidden danger of our government finance and hinders orderly governmentwork, but also restricts the sustainable and healthy development of economy and socialharmony and stability. Therefore, to improve the level of our country’s local governmentdebt management and to prevent and defuse local government debt risk is extremelyurgent.This paper is a systematic research on the prevention and elimination of localgovernment debt risk and has an integrated structure and analysis, from the presentsituation to the problems, from problems to reason, from the reason to countermeasures,from foreign to domestic. This paper is divided into seven parts to study the localgovernment debt problem of our country, and its core is to answer the following fourquestions: the first one is to make clear what is the local government debt and localgovernment debt risk, and how we define the local government debt. Only understandthe connotation of local government debt and the debt risk and divide the scope of localgovernment debt clearly, can we carry out research work later. The second one is thatthe local government debt has how many functions, and becomes how harmful if thescale of the debt exceeds a certain limit. We can’t negate the local government debt, butwe must realize its harm if the scale of debt expands in a rapid speed and the riskgradually increases. The third one is how the local government debt risk forms. As theso-called "an antidote against the disease", finding out the real reason can play amultiplier effect. This part can be said to be the key link to make clear local government debt problem, and put forward good ideas about preventing and defusing localgovernment debt risk. The forth one is how to manage the local government debt andhow to prevent and defuse the debt risk. After the preparatory work is in place, this partis to put forward solutions that regulate local governments borrowing behavior andcontrol local government debt risk. This paper uses a variety of research methods likeexperience summary method and so on, and I read a lot of research data, scientificachievements and data information, which ensures the rationality, comprehensiveness,accuracy. The innovation of this paper lies in: objective analysis to the positive effect ofthe local government debt, systematical classification of the causes of the localgovernment debt risk, in-depth analysis of the foreign advanced experience about themanagement and prevention of local government debt risk, and focus on the analysis ofthe scale of local government debt control and risk warning. The paper highlights aredetermining this year’s new debt scale by the application of sustainability of localgovernment debt, giving a new mathematical definition formula, and empirical researchon the size control of Shanxi Taiyuan’s government debt by KMV model. At the sametime, this paper presents a method for risk warning, and finishes the calculation of thedebt risk taking Taiyuan as an example.