Research On Local Government Bonds In Our Country

The financial capability of local government is weakened while the expenditure liability is increasing since the reform of the tax system. Under the pressure of government performance assessment and the inertia of thinking to stimulate the economy by increasing investment, the local government is expanding the debt scale continually. At the same time, the local government can’t issue municipal bonds due to the provisions of the original "budget law", so they try to financing through the so-called city financing platforms. And as a result, it created a large scale of hidden debt. As lacking of supervision, this kind of debt brings increasing debt risk to the local government and does some bad to the economy.Specialists have put forward many suggestions on how to resolve the debt risk of local government. Almost all of them think that we should allow the local government to issue municipal bonds to make the debt explicit. After the amendment of the budget law,10 provinces and cities are allowed to issue municipal bond.However, there also exposed many problems while the first tasting of municipal bond. Firstly, there is one single kind of municipal bond and the expiry is limited to 5 years,7 years and 10 years. Secondly, the kinds of investors are not enough and the bond lack of liquidity. Thirdly, there are no standard methods to control the size of municipal issuance by now. Fourthly, the credit rating system is not perfect and so on.We first comb the debt risk of the local government and the course of development of local government bonds. And then, through a detailed analysis of the local government bonds, we find some problems in its development process. After that, we analyzed the successful development experience of municipal bonds in America and Japan. And last we propose several suggestions to improve our municipal bond issuance:Frist, enrich the varieties of the municipals and the investors, trying to increase the liquidity of the municipals; second, try to get the method to control the scale of municipal bonds; third, try to improve the credit rating method of municipal bonds; fourth, establish and then improve the repayment mechanism, and strengthen the supervision of the use of the funds. In the paper, the author has tried to raise a preliminary method to control the bond scale, and also tried to make some supplement to our current credit rating methods.