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Financing infrastructure and monitoring fiscal risks at the subnational level

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  • Liu, Lili
  • Pradelli, Juan

Abstract

This paper explores the building blocks of an institutional framework to govern borrowing by subnational entities to finance infrastructure investment. The framework should help in achieving sustainable financing of development needs and sound management of fiscal risks. Based on international experience, the authors suggest a minimum set of indicators for monitoring fiscal and debt developments. Recognizing the different nature and operations of the subnational entities, they propose specific indicators for special purpose vehicles and the government's general budget. The paper outlines an analytical framework to inform policy decisions concerning subnational debt limits, which are country-specific and should not be mechanically applied. Basic notions underpinning medium-term macro-fiscal frameworks and debt sustainability analyses provide effective guidance for identifying prudent levels of subnational debt. The authors argue that developing fiscal and debt indicators and setting borrowing limits should be part of a broader strategy to put in place an adequate fiscal architecture to coordinate and monitor the budgetary and borrowing policies conducted by individual subnational governments. Consistent with this general principle, they explore several areas of subnational public finance and management that need to be addressed with adequate governance structures and policy choices.

Suggested Citation

  • Liu, Lili & Pradelli, Juan, 2012. "Financing infrastructure and monitoring fiscal risks at the subnational level," Policy Research Working Paper Series 6069, The World Bank.
  • Handle: RePEc:wbk:wbrwps:6069
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    References listed on IDEAS

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    1. Ehtisham Ahmad & Giorgio Brosio (ed.), 2009. "Does Decentralization Enhance Service Delivery and Poverty Reduction?," Books, Edward Elgar Publishing, number 13565.
    2. Ianchovichina, Elena & Liu, Lili & Nagarajan, Mohan, 2006. "Subnational fiscal sustainability analysis : what can we learn from Tamil Nadu ?," Policy Research Working Paper Series 3947, The World Bank.
    3. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
    4. Canuto, Otaviano & Liu, Lili, 2010. "Subnational Debt Finance and the Global Financial Crisis," World Bank - Economic Premise, The World Bank, issue 13, pages 1-7, May.
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    Cited by:

    1. Morgan, Peter & Trinh, Long Q., 2016. "Frameworks for Central–Local Government Relations and Fiscal Sustainability," ADBI Working Papers 605, Asian Development Bank Institute.
    2. Madio Fall & Souleymane Coulibaly, 2016. "Diversified Urbanization," World Bank Publications, The World Bank, number 24969, April.

    More about this item

    Keywords

    Debt Markets; Subnational Economic Development; Access to Finance; Public Sector Economics; Bankruptcy and Resolution of Financial Distress;

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