Local Government Debt Issuance and Outstanding: Implications for Fiscal Sustainability

Abstract

This study analyzes process of incurring debt both in principle and in practice as well as debt outstanding of local administrations in Thailand. It finds that five local administrations in the sample follow rules and regulations during the process of incurring debt without problems of adverse selection and moral hazard and those debts, by and large, have been used to finance projects that benefit people in the communities. This study also finds that outstanding debt of local administrations in 2011 amounted to 36,639,089,426 baht. The main sources of local administration borrowing come from the Government Savings Bank, Krungthai Bank Public Co., Ltd. and Municipality Activity Supporting Fund. The analysis of the effect of local administration debt on fiscal sustainability shows that the ratio of local administration debt and public debt to gross domestic product lies within the target of sixty per cent. This study suggests that the government should expedite the Department of Local Administration to systemically collect and timely report data on borrowing and debt outstanding of local administrations. In addition, the Public Debt Management Office should play a critical role in providing knowledge and advices regarding appropriate funding sources, process of borrowing from the Ministry of Finance, as well as risk management for local administrations.