Local Government Borrowing: Risks and Rewards
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Local Government and Public Service Reform Initiative Local Government Borrowing: Risks and Rewards A Report on Central and Eastern Europe Edited by P S L G P S R I O S I–B Address Nádor utca 11. H-1051 Budapest, Hungary Mailing address P.O. Box 519 H-1357 Budapest, Hungary Telephone (36-1) 327-3104 Fax (36-1) 327-3105 E-mail [email protected] Web Site http://lgi.osi.hu/ First published in 2004 by Local Government and Public Service Reform Initiative, Open Society Institute–Budapest © OSI/LGI, 2004 TM and Copyright © 2004 Open Society Institute ISBN: 963 9419 51 6 OPEN SOCIETY INSTITUTE Th e publication of these country reports has been funded by the British Department for International Development and the Local Government and Public Service Reform Initiative of the Open Society Institute in Budapest within the framework of the Local Government Policy Partnership Program. Th e judgments expressed herein do not necessarily refl ect the views of the above two sponsors. All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Copies of the book can be ordered by e-mail or post from LGI. Copy editor: Kim Fraser Cover design: Alexine Chanel Printed in Budapest, Hungary, March 2004. Design & Layout by Createch Ltd. Contents List of Tables and Figures .............................................................v Foreword...................................................................................xiii PART I. Introduction Pawel Swianiewicz Th e Th eory of Local Borrowing and the West-European Experience..........................1 PART II. Country Studies Th e Regulation and Development of the Subsovereign Debt Market in Poland: 1993–2002 ...........................................25 Agnieszka Kopańska and Tony Levitas Local Government Borrowing in Hungary.............79 Gábor Balás and József Hegedüs Local Government Borrowing in the Deregulated Market of the Czech Republic..........127 Vladimír Ježek, Hana Marková and Lukáš Váňa Local Borrowing in Slovakia: From Deregulation to Regulation and Stabilization............................175 Jaroslav Kling and Viktor Nižňanský Local Government Borrowing: Regulations and Practices in Estonia .......................................227 Annika Jaanso, Sulev Liivik, Andrus Jõgi, Tähve Milt iii Bond Issues and Bank Loans: New Mechanisms to Support Local Development in Romania.........277 Anca Ghinea, Gabriela Căluşeru, Iordan Nicola and Stela Stretean Local Government Borrowing in Russia: Diffi cult Paths of Economic Transformation........319 Sergey Mikhaylovich Nikiforov, Andrey Vasil'evich Cherniavsky, Vladislav Eduardovich Grigorov, Igor Vyacheslavovich Belyakov and Konstantin Gur'evich Tioussov PART III. Comparing International Experiences: Emerging Markets of Local Borrowing? ...............385 Pawel Swianiewicz List of Contributors .................................................................423 Index........................................................................................425 iv DFID–LGI LOCAL GOVERNMENT POLICY PARTNERSHIP PROGRAM List of Tables and Figures TABLES CHAPTER 1 Table 1.1: Th e Size of Local Government Debt in West European Countries.......................................................... 16 CHAPTER 2 Table 2.1: Shares of Local Government Expenditure (2001) .......................... 32 Table 2.2: Consolidated Public Expenditures by Level of Government (2000)..................................................... 32 Table 2.3: Structure of Municipal Revenues [%] (1991–2001)....................... 34 Table 2.4: Municipal Investments as a Share of Revenues and GDP [PLN/m] (1994–2001).................................................. 36 Table 2.5: Revenues of Counties and Regions in 2001 ................................... 37 Table 2.6: Local Government Investment Funds by Revenue Type [%] (1995–1998) ................................................................................. 48 Table 2.7: Interest Rate Policies of the National Fund for Environmental Protection (2003).......................................................................... 51 Table 2.8: Number of Municipal Bond Issues by Value (1996–1998)............. 55 Table 2.9: Growth of Local Government Debt [%] (1999–2001) .................. 57 Table 2.10: Project Finance Sources in 1999 and 2000 [%] ............................. 58 Table 2.11: Number of Local Governments with Little or No Debt in 2001....................................................................... 59 Table 2.12: Number of Municipal Bond Issues by Value [PLN] (1999–2001) ................................................................................. 63 CHAPTER 3 Table 3.1: Main Sources of Local Government Revenues in Hungary by Structure [%]................................................................................. 88 Table 3.2: Th e Structure of Local Government Debt, in 2001 [billion HUF] (1998–2002) ............................................. 90 v LOCAL GOVERNMENT BORROWING: RISKS AND REWARDS Table 3.3: Number of Enterprises with Municipal Shareholdings by Legal Form (January, 2000) ...................................................... 92 Table 3.4: Local Investment Finance as Percentage of GDP ........................... 93 Table 3.5: Th e Financial Sources of Local Government Capital Investment (1994–2001) [%]...................................................... 103 Table 3.6: Th e Financial Sources of Local Government Capital Investment (1995–2001)............................................................. 105 Table 3.7: Grant Program for Local Governments and Churches (2000–2002) ............................................................................... 108 Table 3.8: Allocation of the Rental Program among Sub-groups (2000–2002) ............................................................................... 109 Table 3.9: Share of the Account-keeping Market among the Banks (2003) .. 116 Table 3.10: Th e Composition of Municipal Credit [Billion HUF], End of Year.................................................................................. 117 Table 3.11: Size of Outstanding Loans Issued by Raiff eisen Bank [Million HUF]............................................................................ 118 Table 3.12: Outstanding Debt by Type of Local Government (March, 2002)............................................................................. 119 CHAPTER 4 Table 4.1: Structure of Revenues of Municipalities (2001) ........................... 135 Table 4.2: Indebtedness of the Czech Republic [Billion CZK] ..................... 136 Table 4.3: Indebtedness of the Czech Republic [% GNP] ............................ 136 Table 4.4: Indebtedness of Local Governments According to Size ................ 137 Table 4.5: Evolution of the Number of Indebted Municipalities (1994–2001) ............................................................................... 138 Table 4.6: Indebtedness of the Four Largest Cities Compared to Remaining Municipalities [Billion CZK]................................. 138 Table 4.7: Summary Data on Credits Contracted by Municipalities [Billion CZK].............................................................................. 146 Table 4.8: Issues of All Municipal Bonds...................................................... 152 Table 4.9: Summary of Loans Issued to Local Self-governing Units from Budgets of Individual Departments in 2001 [Th ousand CZK]... 158 Table 4.10: Risk-indebted Municipalities According to the Stated Criterion (2000) ......................................................... 160 vi DFID–LGI LOCAL GOVERNMENT POLICY PARTNERSHIP PROGRAM LIST OF TABLES AND FIGURES CHAPTER 5 Table 5.1: Th e Organization of Public Administration in Slovakia ............... 180 Table 5.2: Public Budgets and GDP............................................................. 183 Table 5.3: Development of Local Budget Revenues in 1996–2001 [Million SKK]............................................................................. 184 Table 5.4: Indebtedness of the Regional (kraj) Seat Cities [Million SKK]..... 193 Table 5.5: Received Credits per Capita [SKK].............................................. 194 Table 5.6: Credit Financing of Municipalities [Million SKK]....................... 196 Table 5.7: Debt-related Expenditures of Local Budgets ................................ 196 Table 5.8: Debt-related Expenditures per capita in 2000 [SKK]................... 197 Table 5.9: Alternative Calculation of Local Indebtedness [Million SKK]...... 198 Table 5.10: Model of Local Governments’ Indebtedness Limits ..................... 200 Table 5.11: Th e Role of Bank Loans in Municipal Revenues [Million SKK]... 201 Table 5.12: Municipal Bonds in Slovakia since 1990...................................... 202 Table 5.13: Municipal Bonds by Population of Municipality [SKK] .............. 204 Table 5.14: Municipal Bonds by Maturity in Years......................................... 204 Table 5.15: Municipal Borrowing from the State Environmental Fund .......... 206 Table 5.16: Supports for which Municipalities Can Apply (Eff ective January 1, 2003) .......................................................... 207 Table 5.17: Returnable Support to Municipalities.......................................... 208 Table 5.18: Special Credit Programs