Risk Assessment And Prevention Of Zhe Jiang’s Local Government Debt Based On The KMV Model

The Chinese government resumed bond issue since 1981.By the end of 2013,the government debts had reached more than 56 trillion yuan, which has nearly twenty percent growth rate. But our total assets only had 111.9 trillion yuan in 2013, the growth rate is just ten percent, far below than the debts,. With the sharp debt expansion of local governments in recent years, relevant risks are also beginning to loom large, which cause the high attention of all directions. Both the debt crisis of Greece in 2009 and the insolvency of Detroit in 2013 sounded the alarm bell for Chinese local governments with large scale of debts. Debt issues improperly handed may escalate into debt crisis, which may even cause adverse effects on the macroeconomics operation and social stability in our country. So, it’s very important to properly resolve the debt risk. Central economic work conference in 2013 for the first time the debt risks listed as one of the tasks, the central economic work conference in 2014 continued vigilance debt risk is put forward, therefore, the prevention and control debt risk will still be one of the important tasks of economic work in 2015. Scientific and accurate evaluate the local government debt risk will be the premise and necessary step of control and dissolve the risk.By integrating some newly issued audit data pertinent to ZheJiang and NingBo government debts, this paper briefly sums up the debt situation of ZheJiang local government and its debt risk. With the audit results for the samples, this paper will estimate how much debt ZheJiang province should repay in 2015. This paper will focus on using the KMV model to empirical analyze ZheJiang local government debt default distance and expected default rate. The empirical results show that no matter we choose 40% or 50% fiscal revenue for repay the debt, the expected default rate of Zhe Jiang is both under 0.4%.That is to say the debt is safe for ZheJiang local government. At last, we measured the maximum debt government can with sustain is 1932.41 trillion yuan under the default rate in 0.4%.Although, in this paper, through the model estimates of zhejiang government debt default rate less than 0.4%, we cannot say there is no debt risk any more. Therefore we deeply researched the reason of the government debt risks integrating our country’s history and realistic situation. We think that fiscal system is the primary cause of local government debt risk exists. The concrete can be expressed as: The asymmetry of the central and local finance rights and uneven development, Local governments need to take a lot of public spending, the local tax lacks of main tax. In addition, the local governments lack strict management in debt, soft budget constraints and the unreasonable performance appraisal system and so on, all these are the factors of the debt risks.The final destination of both evaluating the risk and researching the reasons are against and prevent the outbreak of the risk in time. This paper summarizes the suggestion to prevent the local government debt risks in four aspects: The first and most fundamental, is to establish a normative financial system; Secondly, perfect government debt management mechanism; Thirdly, from the administrative system, improve the government performance evaluation and supervision system; Finally, reasonable control the scale of debt and guard against risks from the debt.