The Research Into The Local Government Debt Risk Of Hunan Province Based On Stress Tests

While the current "Budget Law" clearly provides local governments may notborrow debt, in reality, levels of local government still exist various forms of debt. Inrecent years, local government debt has played an acative role in many aspects likesupporting the local economic and social development. But at the same time, with thegrowing size of local government debt, there are some issues that can’t be ignored inthe borrowing, use, repayment and other management aspects of local governmentdebt, which accumulate a certain risk. This will certainly damage the localgovernment’s ability to govern, to increase local fiscal and financial risks and doharm to the sustainable and stable development of local economic and social.Therefore, from the perspective of science and long-term development considerations,it is necessary to fully understand the risks of local government debt, recognizing theimportance and urgency of strengthening the management of local government debt,strengthening the daily management of local government debt, strictly prevent andresolve the financial financial risks.In this paper, we try to use public finance, statistics, econometrics and other relatedknowledge, to construct the local government debt risk stress testing framework. Byforecasting the annual debt stock and new debt which can be the difference ininvestment demand and local government’s ability of local government, we cancalculate the selected local government debt risk stress test indicators such asgovernment debt burden ratio, debt ratio and other values under different scenarios.On this basis, we will do dynamic empirical analysis of local government debt riskcombined the local government fiscal data of Hunan Province, then predict its2013-2017debt risk in different GDP growth and government powers between thedifferent pattern of conditions. The empirical results show that the annual forecast ofHunan local government debt there are certain risks, but overall risk is controllable.Accordingly, the paper proposes the policy recommendations to resolve the debt riskof local government in Hunan Province.