Subnational Debt, Insolvency, and Market Development
State and local debt and the debt of quasi-public agencies have grown in importance as a result of fiscal decentralization, rapid urbanization, and the increasing role played by private capital. However, with debt comes the risk of insolvency. This note outlines a set of aligned fiscal incentives that should be in place, as well as the design issues to be considered in debt restructuring frameworks. This note also suggests some broad lessons extracted from several country experiences with subnational debt restructuring, insolvency frameworks, and debt market development. This note suggest a range of possible lessons to consider when designing reforms to align fiscal incentives and develop a robust subnational debt framework that can be used to effectively manage the insolvency risks that will inevitably accompany the new dynamism of subnational finance.
Summary: | State and local debt and the debt of
quasi-public agencies have grown in importance as a result
of fiscal decentralization, rapid urbanization, and the
increasing role played by private capital. However, with
debt comes the risk of insolvency. This note outlines a set
of aligned fiscal incentives that should be in place, as
well as the design issues to be considered in debt
restructuring frameworks. This note also suggests some broad
lessons extracted from several country experiences with
subnational debt restructuring, insolvency frameworks, and
debt market development. This note suggest a range of
possible lessons to consider when designing reforms to align
fiscal incentives and develop a robust subnational debt
framework that can be used to effectively manage the
insolvency risks that will inevitably accompany the new
dynamism of subnational finance. |
---|