Some methods of borrowing by local governments in various countries

Although the specific national conditions of each country are different, and there are also differences in the methods and preferences of raising fiscal revenue, in general, borrowing is not only a financing method commonly used by local governments in developed countries, but is also increasingly valued by developing countries. Most of these countries stipulate that local governments can only borrow domestic debts, while only a few countries stipulate that local governments at a certain level can borrow foreign debts with the authorization of the central government.

Local governments in various countries usually raise debt through bond issuance and bank borrowing. Both have their pros and cons. The pricing of bond issuance depends entirely on market competition. The advantage is that the cost of bond issuance is low. However, due to the constraints of market supervision and high requirements for information disclosure and transparency, this debt financing method is more suitable for local governments with large economic scale and good foundation; bank borrowing procedures It is relatively simple. Local governments only need to provide necessary information to borrowing banks, which is more suitable for smaller local governments. However, this method of borrowing has higher costs. At the same time, because banks have limited restrictions and supervision on local governments, there may be some loopholes in management. . Looking at different countries, the United States and India mainly issue municipal bonds, the United Kingdom mainly issues bank loans, and Germany and Japan do both.

Almost all financing by national, state and sub-state local governments is through the issuance of municipal bonds. Its municipal bonds are divided into two categories: general obligation bonds and revenue bonds. Among them, general obligation bonds are bonds guaranteed by the entire reputation and credit of the issuing institution and supported by government fiscal taxes. Revenue bonds are linked to specific projects or specific taxes, and their principal and interest payments come from the income from specific projects. U.S. municipal bonds offer tax breaks, lower risk, and higher after-tax yields. There are two main ways of issuing municipal bonds: public offering and private placement. The main investment entities include individual investors, money market funds, mutual funds, commercial banks, insurance companies, closed-end funds and other investors. Currently, 99% of municipal bonds are issued through public offerings.

British local government financing mainly comes from loans from the Public Works Loan Board and commercial banks. The Public Works Loan Board, part of HM Treasury's Office of Debt Management, provides nearly 80% of local government borrowing by on-lending the National Loan Fund, which is financed from national debt. French local governments owe almost all of their liabilities to banks and rarely issue bonds.

Japanese local governments not only borrow from central government funds, public enterprise financial treasury, banks and other institutions, but also issue bonds through public or private placement. Local governments usually issue medium- and long-term bonds through public offerings. Local public bonds are issued directly by local governments and are mainly used for local road construction, regional development, and compulsory education.Facility construction, public housing construction, acquisition of public land and other public utilities.

Most countries require local governments to abide by the "golden rule" when borrowing, that is, except for short-term debt, local government debt can only be used for basic and public welfare capital projects. Expenditures cannot be used to make up for local government regular budget shortfalls. A few countries, such as Canada, the United States, Germany and Switzerland, also allow local governments to borrow debt to make up for seasonal gaps in fiscal revenue and expenditure.