China's Local Government Debt Risk Assessment And Management Based On KMV Model

In order to sustain growth rates,China's local government borrowed heavily through a variety of means.Appropriate debt can provide funds for the development of the region and guarantee funds flow smoothly,which is conducive to local economic development.However,excessive debt will bring risks and even lead to a debt crisis.After the tax-sharing system reform in China,the debt scale of the local government has expanded greatly.The debt issuance,management and use have encountered big problems.Coupled with the widespread lack of reasonable debt management system,the credit risk of local government debt is obvious and continues to accumulate.This paper chooses X City as a case to study on the Debt Risk Management of local government by using related fiscal and debt data.This paper expounds the present situation of local government debt risk and analyzes its influence factors.Then,through collecting the data from 2000 to 2017 of the local government debt in X City,it measures the risk of local government debt via KMV model and predict the scale of X Cities next issuance of local government debt and its EDF(Expected Default Frequency).The risk measurement result shows,when government's ratio of financing is from 30% to 50%,its EDF is small and rise slowly.When the ratio greater than 50%,the EDF increase rapidly,furthermore in the form of nonlinear growth.Therefore,the debt risk of local government is sensitive to scale of borrowing.In order to control the debt risk of local government;it must strictly control the scale of the debt.Finally,this paper puts forward some local government debt risk prevention and control suggestions: Establish a standard and reasonable risk-alert system for local governments.Accelerate reform of the fiscal and taxation systems.Transforme of the economic growth pattern.Transform the local government performance appraisal system.Establish a reasonable debt-management system for local governments.