The 2015 New Budget Law gave local governments the authority to raise debts and opened the “front door” to local governments. Since 2015, the scale of local government bond issuance has remained at a high level, with an average annual growth rate of 48.1%, which is much higher than the economic growth rate and fiscal revenue growth rate over the same period.
According to data from the Ministry of Finance, as of the end of October 2020, the balance of local government debt across the country is about 25.8 trillion yuan, which is within the limit approved by the National People’s Congress. Ministry of Finance officials predict that the country’s local government debt balance will reach 26 trillion yuan by the end of this year, and the debt ratio will be close to the lower limit of the warning range (100%~120%). If local governments continue to issue bonds on the scale of this year, they may enter a warning zone next year.
In this situation, how to determine the scale of government debt in the future, especially the scale of local government debt, has attracted much attention.
When Liu Kun talked about improving the government debt management system and mechanism during the “14th Five-Year Plan” in the above article, he first emphasized that the scale of government debt should be reasonably determined according to the need for countercyclical adjustment of fiscal policy and the requirements of fiscal sustainability. He said that it is necessary to improve the local government debt limit determination mechanism, the general debt limit is matched with general public budget revenue such as taxes, and the special debt limit is matched with government fund budget revenue and project income.
Qiao Baoyun, dean of the Institute of Public Finance and Policy of the Central University of Finance and Economics, told China Business News that in recent years, in order to cope with the pressure of economic slowdown, coupled with this year’s new crown pneumonia epidemic, it is necessary for local governments to increase the scale of borrowing. Economic recovery. However, local governments will rely on future tax revenues, land sales revenues, project revenues, etc. to repay the debts in the future. Therefore, the scale of debts needs to match the corresponding income. As the economy gradually recovers, during the “14th Five-Year Plan” period and for a period of time in the future, fiscal rebalancing is the general direction, and the expansion of local government debt will decline.
Professor Ji Fuxing from the School of Economics of the University of Chinese Academy of Social Sciences told China Business News that in the future, we will still follow the matching of debt and solvency to ensure efficient use of debt and converge debt leverage within a reasonable range. The “14th Five-Year Plan” debt still needs to maintain a certain scale to hedge internal and external risks, but the growth rate may be moderately reduced or adjusted in due course due to factors such as the accumulation of debt stock.
Local government bonds are subdivided into general bonds and special bonds. The former is where the local government raises funds for non-profit public welfare projects and repays them with general public budget revenue, which is included in the fiscal deficit. The latter raises funds for public welfare projects with a certain amount of income, and relies on government fund income or special project income mainly from land sales to repay debts, and is not included in the deficit. In recent years, the scale of local general bond issuance has been relatively small and the growth rate has been flat, while the scale of special bond issuance has been relatively large and the growth rate has been high.
Professor Mao Jie from the University of International Business and Economics told CBN that local government general bonds are included in the deficit. If the government debt ratio remains unchanged and the nominal growth rate of the economy maintains a high growth rate, then the scale of borrowing can be expanded accordingly, otherwise the scale of borrowing will be difficult to grow. . Local government special bonds are not included in the deficit, and the scale of borrowing is more affected by land sales income and project income. Therefore, there are large differences in the scale of special bonds in various regions.
An official of the Ministry of Finance also publicly stated recently that in order to achieve the long-term sustainable development of local government bonds, it is necessary to scientifically analyze the government’s borrowing space and reasonably determine the scale of local government borrowing in accordance with the need for countercyclical adjustment of fiscal policies and the requirements for sustainable fiscal development. , To maintain the overall government leverage ratio stable. After the macro-economy improves, the scale of statutory debts, especially special debts, should gradually “regress” to prevent the formation of path dependence and the continuous accumulation of debt risks.
Professor Wen Laicheng from the Central University of Finance and Economics told China Business News that during the “14th Five-Year Plan” period, local government debt must not only take into account the needs of economic and social development, but also control the debt risk within a certain range. At present, the Ministry of Finance has set a 100% debt ratio red line. In the future, local government debt ratios generally need to be controlled within this red line.