Research On Early Warning Of Local Government Debt Risk

Debt issuance is an important source of funding for the local government's economic construction,which is conducive to solving the shortage of funds by local governments in infrastructure construction and social services.Excessive issuance of debt,however,will make the scale of local government debt excessively large and thus increase the debt risk.Not conducive to regional economic construction and development,more serious will endanger the stability of the entire financial market and systemic financial risks increase.With the outbreak of the sovereign debt crisis in 2008 and China's increasing status in the world financial system,the recessive inflation of local government debt in China and its implied national economic risks have drawn wide attention both at home and abroad.Analyzing the reasonable scale of local government debts and defining the debts risks of local governments in our country at present is not only instructive for local governments to formulate a sound financial budget management system,but also conducive to guiding the correct market expectations and providing a stable Market environment.This article is mainly divided into three parts.The first part describes and analyzes the development of local government's debt problems;the second part designs the warning programs of the local governments' debt risk,including four aspects:? Selecting comprehensive index system to evaluate the local governments' debt risk.? Using entropy method to determine the weight of these indicators.? Using the weights of index to construct a comprehensive score of local governments' debt risk using the TOPSIS method.? Using the comprehensive scores and transition probabilities to construct a warning plan about debt risk.The third part mainly discusses the rationality of the warning plan constructed in this paper and gives the corresponding implementation approach.By constructing the warning program of local governments' debt risk,we find that there are significant differences in the weight sequences of various indicators obtained in different years.As time progresses,there are great differences in the factors that influence the local government debt risk.Among the 31 provinces studied in this paper,the highest risk might occur in Jiangsu,Hebei,Shandong,Chongqing,Xinjiang,and Henan,and there are higher debt risks in Yunnan,Anhui,Inner Mongolia,Jiangxi,Hunan,and Zhejiang,the debt risk of other provinces might lower.In addition,Xinjiang,Chongqing,Yunnan,Inner Mongolia,and Ningxia can easily shift from a low-risk state to a high-risk state.If there is a higher debt risk and the average duration is long,we should pay more attention on them.Guangdong,Guangxi,Shanxi,Sichuan,Hubei,Zhejiang,and Gansu have lower probability of maintaining high-risk states and have shorter duration in high-risk states.Jiangsu,Shandong,and Hebei not only have greater debt risks now,having a longer average duration of high-risk conditions in the future.They are key early-warning provinces.