Study On Control Of Debt Risk Of County Government

This paper makes a theoretical and positive study on the debt risk of county government. Based on the theories of county economy development, fiscal management, risk management and sustainable development, this thesis studies the connotation, debt motivation, formative mechanism and influential factors of the debt risk of county government, and also establishes both the theoretic model and the empirical model for measurement and forecast on debt risk of country government. After empirically examining its present situation, the causes and influences of debt risk of county economy are exposed. According to the economic and social responsibilities of county government and development tendency of future county economy, the paper probes into the early-warning and supervising system for government debt risk of county economy, and some policy proposals about prevention and dissolution of the county government debt risk are put forward.1. Conclusions(1) Moderate debt scale of county government is rational at present Although the Budget Law prescribes that the local government should balance the budget, what is worth of paying attention to is that most of the debt risk of the county government has been formed and the number is quite large. Many county governments need new debt to pay the old debt back to avoid payment crisis. If the county governments' debt were not allowed, many of them would sink into crisis, the whole payment chain would break down and the financial and social crisis would break out. In addition, capital shortage is the key factor to restrict county economy and social development. Moderate debt can largely alleviate this problem and provide the capital for ensuring the county agriculture industrialization, enterprise reform and urbanization. So it's necessary for county government to have moderate debt.(2) The debt extension is the result of balance of debt's return and cost, high return and low cost on short term together push the county debt to excessive amount In the county government's total return function (R), discount rate P is an important variable. The larger the P is, the less debt's future return contributes to present return, and P is always supposed to be large when the government officials are frequently rotated. The debt cost has close relation to government's debt risk. The higher the risk is, the larger the cost is. Due to county government's particularity, the debt cost can't be completely internalized but can be transferred by the upper government's guarantee, the county government' rights usage, the vulnerable group's involuntarily dealing with debt, etc. So with the pushes of high retum and low cost on short run, the motivation to expand the debt is obvious.(3) Debt risk of local government is determined by static and dynamic factors, The static factor that induces the debt of country government mainly comes from two aspects. One is the debt behavior of government. When there is large stock amount of government debt and heavy historical burden, there must be large unpaid debt balance, and the possibility that the income is smaller than the payout is going to rise consequentially. When debt cost is higher, or the debt structure is unreasonable, the possibility of payment crisis will nm higher as well. Another is net cash flow of county government in the same year. When the revenue income decreases, while expenditure increases, or the financing approach of government is blocked, the possibility of occurring of payment crisis is higher than before. From the dynamic facet, the main factors that determine the debt risk are economy growth and debt cost. When the economy of local government is stagnant, debt burden of government will incline to infinity, and debt risk of local government is going to occur; when the debt cost is higher than economy growth, and new debt increases unlimitedly, debt burden of govemment will incline to infinity, and debt risk exists consequentially.(4) Total scale of county government's debt is quite large and the phenomenon of over-debt in government is prevalent. According to 2000-2004 years' statistical data of A city, the explicit debt in counties or towns of A city was 100%. At the end of 2000, the overall balance of dominant debt in 40 counties or towns reached 18, 962, 010 thousand Yuan, the average balance of debt was 474, 050 thousand Yuan. And at the end of 2004, the overall balance of dominant debt in 40 counties or towns reached 34, 360, 590 thousand Yuan, the average balance of debt increased 95% annually. As far as structure is concerned, explicit debt of county is mainly direct explicit-debt, which includes four parts such as, special loan for solving local financial risk, other loan of domestic financial institutions, loan from unit, conversion capital from national debt. Town government debt is also common in A city. In 2000-2004 year, the average overall balance of annually explicit debt in 33 towns drew out from A city is 267, 347.5 thousand Yuan, the average balance of explicit debt in each town is 8, 082 thousand Yuan.(5) High debt risk is behind the excessive debt of county government in China. The statistics shows that the causes of high debt risk of county government lie in the large scale and high rate of debt, heavy debt burden, highly debt dependence of government, high personal burden of debt residents, low abilities of borrowing and returning debt etc. According to the 40 counties and towns' statistics, from 2000 to 2004, the average rate of fiscal debt is 367.06%, the average debt burden rate is 15.41%, the average debt dependence is 18.06%, the average personal burden of debt residents' rate is 40.83%. The ratio of average debt growth rate and GDP growth rate is 165.08% in the crisis region. Among them 43 observant values is in crisis, accounting for 26.9% of the total number, and 10 observant values is in high risk, accounting for 6.3%.(6) The county government's debt risk has characteristics including relevance, invisibility, non-proportionality and transitivity, and unfavorably affects the social harmonious development. The debt risk correlates with the personal and public risk in the county and town economy. Occurrence and extension of the personal risk can be transformed into public risk and then debt risk. The government debt includes explicit and tacit debt. The harm of the tacit debt can be directly felt only when it accumulates to some extent and fiscal and government trust crisis occurs. The debt risk among each county economy is differential. In the less developing counties and towns, the debt is used for insufficient continuous fiscal expenditure and it doesn't promote the economy development. So the scale of debt grows larger and the risk rises, which forms the social risk, lowers the fiscal expenditure performance, engenders unfavorable effect on the peasants' income and deteriorates the social environment(7) The reasons for the form and accumulation of county government's debt risk may be explained as follows. Firstly, due to the whole nation's unhealthy risk precaution system, especially insurance system, social risk precaution system and finance risk management system, many risks clustered transfer to the government and then form the government debt risk. Secondly, the asymmetry between less financial rights and more government duties causes government to deal with capital shortage by debt. The third is the short-term actions and irrationality of the county government, and the fourth lies in the lack of scientific management of county government debt.2. Main perspectives(1) Country economy plays an important role in national economy, every government branch should pay attention to the development of country economy.(2) Government debt of country economy is a common phenomenon of modem society, and has its historic and practical necessity. Excessive country government debt impedes the development of country economy and role plays and ordinary operation of government organization.(3) Excessive debt of county government induces severe debt risks, which will lead to economic and social crisis if it is overseen and is not under control.(4) In order to strengthen control and supervision debt risk of county government, we should transfer government function, regulate duties and debt activities.3. Some suggestions(1) Dissolve the county government's debt stock variable through various ways, relieving the historical burdens. Since the scale of the county government's debt is huge, debt risk circulates highly, the problem has becoming serious and stubborn. The most important thing for the government is to resolving the county government's debt stock variable through various ways, otherwise the liability risk situation will become worse. In the frost place, the government should clean and rectify the country or town government's debt, check the historical stock variable. For cleanly displaying the current situation and serious level of the county government's debt, the government should organize the federal debt cleaning committee, which is composed of fiscal department, banking department and accounting department, to investigate the country or town government's debt in every aspect, especially to investigate the hidden or Potential debt completely. The aim of doing this is to make clear what the type and degree of the debt and what short run and long run influence they will post on the county's debt risk. As to the rectifying of the current debt, what should be made clear is that which part the government should bear and which part the enterprise or non-government organization should bear. The county government ought to make the risk in control to avoid the risks in other range becoming the county's risks. In the second place, the country or town government should found the professional organization to resolving the county government's debt risk. The government also has to confirm the aim of the resolving the risks, draw up the country or town's risk-resolving reserve project and urge the relevant department to carry out the risk-resolving work. The govcrnment should also establish rational debt-payment system, which means in line with the responsibility-belonging regulations, the debt' responsibility should be delimited between the central government and local government. Meanwhile, various financing tools should be opened to local government, allowing some province governments that have the condition to issue its government's bonds. Through capital operation, raising funds through various ways and resolving the government's history burdens in the way of replacement and offset.(2) Transfer the function of the county government, establishing scientific performance-evaluation system for local government. Firstly, we should transfer the function of the county government. The government ought to change from the infinite-government to the limited-government, from the limited-government concerning planning and controlling to the efficiency-government which is concerning the performance; the guiding function should be strengthened, which means the country or town government ought to strengthen the guiding of the regional economy development, put forward developing strategy and industry policy suitable to local compared-advantage and strengthen the harmony of the area development and macro guiding. Meanwhile, the county government must erect the service-conscious, which means the government should create the "attracting the business, accommodating the business, intimating the business" developing environment, lower the local transaction cost. Secondly, the country or town government should establish the government behavior regulation system through taking full use of administrable, lawful and democratic monitoring methods to avoid the county government's behavior at will, especially to avoid the irrational behavior of transferring the debt and the cost of the government. The government ought to try best to make the government's debt and cost internal to avoid the occurring of the government's shortsighted behavior. The last but not the least, the real transformation of county government's function cannot do without establishing of scientific performance-evaluation system for local government, whose core is not GDP but is to lower the transaction cost and to pursue the harmony development between the environment and the economic.(3) Consummate the detached-tax system, redefine the financial right and working right of country government The asymmetry of financial right and working right is an important cause of existing debt risks and is a country government's excuse for expanding the debts. Redefining the financial right and working right of country government is the key to prevent further deterioration of debt risks. Firstly, we should clear up the financial relationship between central government and local government. Financial expenditure scope should be made rationally on the basis of adjusting working rights between central government and local government scientifically. Central government is to take charge of central government's own working right, and so as to local government. Their common working rights have to be confirmed normatively. As to the revenue, it has to adjust the revenue scope of the central and local governments properly. With regard to the manage preview, local government should be authorized to manage and adjust newly collected regional taxes. For example, some indifferent regional taxes that don't affect the general economy can be stipulated in law by country government and be put on records by the country. It is necessary to establish normal transferring payment system among governments, planning the increment distribution and subsistent amount distribution as a whole. On the principle of supporting underdeveloped areas, while keeping the rapid improving tendency of developed areas, we must arrange country expenditure level and transferring payment amount in order to resolve and deflate financial differences among different areas. We should put favorable policies to the poor mountainous areas to speed up their development.(4) Liabilities risks inspecting and defending mechanism of country economic government are to be established and perfected. Country government's debt risk is concealed and accumulated, it will bring many bad effects when it breaks out. Establishing the mechanism of debt inspection and playing its function in country government will greatly help us to prevent the risks beforehand, but not finding and solving it afterwards as before. It can reduce the relevant loss at the same time. Above all, we should know about the characteristics of country government's debts, explicate the aim of debt inspection, build scientific standards of evaluating and analyzing the debt risks and set up inspecting and identifying mechanism, in order to form persistent, dynamic and discriminating inspect system. Next, from analyzing the dynamic and static factors, which influence the liabilities risks of country government, we have to find out the foreshowing indexes, which cause the liabilities, and establish a defending system. Debt risks will be prevented by using such impressible indicators as individual's repay rate, debts dependence rate, average fixed number of year for repaying debts, reimburse rate of finance, local government's liabilities balance increasing rate/local GDP increasing rate, the increasing rate of local finance amount repaid p. a. /increasing rate of local finance revenue and so on.(5) Establish and enhance debt risk supervision and management system of county government. The main reason that causes the debt scale's annually increasing is the county government's ineffective supervision and management. In order to ensure sustainable development of county economy and minimize debt risk, overall scientific supervision on the debt risk of county economy is urgently needed. According to lawful, prudence, overall, whole process and comprehensive supervising principle, debt risk of county government should be controlled in the safe scope. So we should construct the supervising system uniting "borrowing, using and returning" and "duty, right and benefit", to enhance supervising organization and regulation construction and establish debt risk supervision information system, debt risk supervision and evaluation system, government crisis early-warning supervising system, social press and law supervision system, to establish and perfect government debt risk management system, to establish debt risk supervision and management operation mechanism and damping mechanism and to inquiry for audit,finance,people's congress and society press supervision and management model.(6) Construct national comprehensive risk management system, perfect associated prevention, control and comprehensive early-warning mechanism about fiscal risk, financial risk and social risk. Owing to financial insurance existed objectively, in fact, all kinds of personal risk,public risk,financial risk transfer to the gov(?)rnment debt risk finally. In order to prevent and dissolve government debt risk, national comprehensive risk management system should be established and enhanced. First of all, strengthen insurance system, developing and innovating new kinds of insurance, advancing agriculture and credit insurance development. Secondly, construct social risk prevention system and establish prevention and early-warning system about nature crisis,accident crisis,public sanitation,society police and so on. Thirdly, enhance financial risk management system. No matter whether county government or town government, about one third debt comes from resolving financial risk with prevail method of transferring financial risk to fiscal. At present, we should strengthen financial risk consciousness of financial corporations, enhance national financial risk supervision and control to prevent financial risk from accumulating. Finally, establish comprehensive prevention, control and early-warning mechanism about fiscal risk, financial risk and social risk, and control the whole risks of the society and optimize the structure. ##原图像不清晰...