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Budget Plan Credit Negative for Local Govts
Mar 13,2013 10:06CST
industry news
Source:SMM
The 2012 budget outcome and 2013 draft budget for the central and local governments released last Tuesday are credit negative for China's local governments.

SHANGHAI, Mar. 13 -- The 2012 budget outcome and 2013 draft budget for the central and local governments released last Tuesday, both of which show a slowdown in the pace of revenue growth, are credit negative for China's local governments, Moody's Investors Service said in a report.

"It will constrain these entities' ability to fund mounting demands to provide services and infrastructure amid the country's continued urbanization," said Debra Roane, vice-president and senior credit officer of Moody's.

"These pressures are likely to lead some local governments to increase borrowing via local government financing vehicles, a practice that has already led to high local debt burdens in recent years," Roane added.

According to the Ministry of Finance, the 2013 budget draft forecasts local governments' revenue growing 9 percent, while the 2012 budget outcome report showed that revenue increased 16.2 percent.

The World Bank estimates that total investments — a portion of which will be financed by local governments — required to support large migration from rural to urban centers could cost $6.4 trillion by 2030, versus $2.3 trillion1 in total local governments revenues in 2012.

"If revenues are insufficient to support these activities, local governments will likely rely more on their financing vehicles, which they use to access financing because the national government restricts direct borrowing," Roane said.

"This would therefore add to the local governments' debt burden and, to the extent that cash flows of these companies are weak, would place additional burden on their budgets for debt service subsidies."
 

China 2013 budget draft

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