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Local Governments Face High Pressure as Debts Mature

SecuTimes recently reported on the issue of local governments facing pressure due to debts that will mature at a peak time in 2012. According to the National Audit Office, it is estimated that local government debts amounting to RMB 3 trillion (US$477 billion) are expected to mature this year. With the adjusted interest rate, 2012 is the year in which local governments face the highest risk of defaulting on their debts. By the end of 2010, total local debts reached RMB 9.67 trillion (US$1.54 trillion). In fact, local governments never planned to pay off their debts with budgeted fiscal funds. Instead, nearly all expected payments were based on anticipated land sale income that was not included in the official budget. However, the cooling housing market has caused a significant decline in land sales. It is estimated that the funding gap for these debts is about RMB 500 to 1000 billion. In the meantime, local governments are required to fund housing construction plans for low income families. This will further increase the likelihood of a debt crisis.

Source: SecuTimes, April 28, 2012