Transcript Paweł Swianiewicz Warsaw University

Paweł Swianiewicz
Warsaw University
Local Government Borrowing in
Central and Eastern Europe:
Comparative Conclusions
Local Government Policy Partnership
Programme
• Co-financed by the Local Government and Public Service
Initiative (LGI) of the Open Society Institute and the
British Government’s Department for International
Development (DFID)
• 9 policy studies in 2000-2003, each covering several
countries of the region:
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Public perception of local governments
Housing policy
Educatiobn
Communal services
Financing local government investments
Size of local governments
Transparency/ Corruption in Local Governments
Local Economic Development
Local Government Borrowing
Local government borrowing –
seven countries involved:
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Russia
Poland
Hungary
Czech Republic
Slovakia
Estonia
Romania
Local government borrowing –
main issues
• Why to borrow? When to borrow, for what and
how much?
• Legal regulations
• Limits of local indebtednes
• Evolution of local government borrowing policies
and indebtedness level
• Variation between local governments within
individual countries
• Major barriers for more efficient functioning of
the borrowing market
To borrow or not to borrow?
• Not for current expenditures
• Yes, for capital purposes because:
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Inter-temporal equity principle
Occasion to accelarate economic development
Occasion to reduce operational costs
Longer lasting capital projects cost more
Increases access to donor / EU money
Table 1. Summary of borrowing regulations
Czech Rep.
Estonia
Hungary
For capital or Both
Long-term – for Both
operating
investments only,
purposes?
but no separation
of capital budget.
Limit
of No limit
60%
of
net No limit
overall debt
revenues (without
state earmarked
grants)
60% of
revenues,
20%
of
revenues
Sanctions for Not applicable
not
following
Effectively
no,
but
ex-ante
control
of
Regional
Audit
Offices
Presentation
of “Core properties” Limits applying
development
cannot be used as when public debt
plan; guarantees collateral
exceeds
50%
by local govt.
GDP
prohibited
Debt of municipal
companies is not
included in the
limits
Debt of municipal
companies
not
included in the
limits
(unless
formal
l.g.
guarantees exist)
15% of
revenues
Romania
Long-term – for
investments only,
but no separation
of capital budget.
total 20% of current
revenues;
short
term – 5%
Limit of debt No limit
service
Any
other Forecast
balance
conditions
sheet for 2-5 years;
internal audit; with
some exceptions –
guarantees by local
govt. prohibited
Comments
Limits
were
introduced
for
short periods only
– in part of 2002
debt servicing no
larger than 15% of
budget revenues
net Adjusted current
own revenues net
of short term
commitments and
liabilities
Since 2003 – Effectively no
possibility to hold
state
fund
transfers
Poland
Both
total No limit
Debt of municipal Any borrowing –
companies is not since 1999 only
included in the
limits
(unless
formal
l.g.
guarantees exist)
Slovakia
For
investments
only.
No limits but from
2005 – 60% of
current revenues;
state
supported
loans not included
No limits, but
from 2005 – 25%
of revenues; state
support loans not
included
Not applicable
Ministry
of
Finance
ex-ante
approval of credits
over (approx.) 2
mln
USD
is
required
Guarantees
by
local governments
prohibited
Table 6. Local government borrowing – summary of regulations and practice
Regulations
Purpose of borrowing Limitation of debt
Russia
capital spending
moderate-strict
Romania
Estonia
Slovakia
Czech Republic
Hungary
Poland
capital spending
capital spending
capital spending
Any
Any
Any
moderate-strict
moderate-strict
liberal
liberal
moderate-strict
strict
Practice
Dominant form of Local debt as % of local The role of debt in local
borrowing
revenues
investments’ financing
arrears, interaround 4
<10%
governmental loans
Arrears
around 2
<10%
bank credits, bonds
almost 20
around 12%
bank credits
almost 40
over 40%
bank credits
around 30
over 40%
bank credits
around 6
over 40%
bank credits
around 15
over 40%
Local borrowing in CEE countries –
overall conclusions 1
• there are several rational arguments for wider using of borrowing
to finance local government investments.And especially in countries
where this method has not been popular yet, there is a case to
investigate this option more thoroughly..
• local borrowing should be monitored. It requires complete, precise
and up-to-date information.
• availability of information - transparency and public access to data
on local borrowing. Public finance is public, so it cannot be
confidential.
• local borrowing a wider context – stability of public finance,
predictability of local revenues, condition of the banking system
etc.
• local governments should have considerable amount of fiscal
autonomy and their borrowing policies should not be subordinated
to the debt made by the central government.
Local borrowing in CEE countries –
overall conclusions 2
• local borrowing market depends on fiscal autonomy –
namely control of local government over its revenues.
• Development of the local borrowing market requires
liquidation of substantial arrears in payments.
• form of local indebtedness which plays an important
role in several countries, but which we must not
recommend is a system of inter-governmental loans.
• regulations on local borrowing need to be predictable
and this requires first of all stability.
• the “golden rule of the balanced budget” should be
applied in Central and Eastern Europe
Local borrowing in CEE countries –
overall conclusions 3
• effective implementation of the “golden rule”
requires a clear separation of capital and
operating budgets,
• agreed rules are really observed in practice.
• On a local level, there is still a demand for
developing expertise of the staff.
• In practice, most of local governments are
prudent in their borrowing policies, but there
are some (discussed in national reports)
exceptions to this rule and they call for an
existence of clear external regulations.