Zeljko Sevic, University of Greenwich, UK 
E-mail: Z.Sevic@gre.ac.uk


NISPAcee Project Manager:

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The main goal of this research is to examine the policy and practice of local public debt and its management. Decentralisation, devolution, delegation, de-concentration and similar actions aimed at bringing government closer to the people, assume that enough public funds are made available to local government bodies and their independent agencies. In order to deliver this local governments are to be given enough resources to be successful in delivering newly acquired services and exercising attracted powers. Usual point of departure is that local government will be given approximately the amount that the central government has spent rendering delegated services. However, with the constant squeeze of the public purse, usually the powers and services are transferred, but this move is not followed by the transfer of corresponding resources. Therefore, local (sub-national) governments are forced to look for other sources of revenue. Usually, they may seek to establish independent local revenue streams, but the problem is that often they need prior approval of the central government before the levies are imposed. Similarly, the local governments often have to seek prior approval before applying for loans or other forms of debt.

 

The public debt limits are usually regulated by law and enforced by the central bank, which monitors the national level of indebtedness, acting as a government agent, especially when the debt is with a foreign element. Central governments can in the final instance monetise their debt, but this is not an option for local and other sub-national level governments. They are more treated similarly to private borrowers and they can do default on their debt. Sub-national governments are evaluated by private rating agencies and investors are interested in their standing, as the interest that they will pay will depend not only on inflation, maturing and also on the risk of default associated with a particular class of securities. Although, traditionally the focus in the Western public finance (public financial management) literature has been on attracting funds through the issuance of securities, one should not neglect the classical loans and credits that commercial banks can extend to local governments. In fact, in most developing and transitional economies, this is the most preferred form of municipal debit.