Managing Subnational Credit and Default Risks

20 Pages Posted: 20 Apr 2016

See all articles by Lili Liu

Lili Liu

World Bank - Poverty Reduction and Economic Management Network (PREM)

Michael Waibel

University of Cambridge - Faculty of Law; Lauterpacht Centre for International Law; University of Cambridge - Jesus College

Date Written: July 1, 2010

Abstract

As a result of worldwide decentralization, subnational debt is rising. Subnational debt crises in major developing countries in the 1990s have led to strengthened regulatory frameworks for subnational borrowing and insolvency. With the fragility of the global recovery and increasing public debt, and the structural trends of decentralization and urbanization, it becomes more important to prudently manage subnational default risks. Although the regulatory frameworks share central features, the historical context and entry points for reform drive variations across countries. Addressing soft budget constraints is integral to the regulatory framework. Ex ante fiscal rules for subnational governments attempt to limit default risks; ex post regulation predictably allocates default risk, while providing breathing space for orderly debt restructuring and fiscal adjustment, as well as the continued delivery of essential public services. The regulatory reforms are inseparable from the reform of broader intergovernmental fiscal systems and financial markets.

Keywords: Bankruptcy and Resolution of Financial Distress, Debt Markets, Access to Finance, Banks & Banking Reform, Subnational Economic Development

Suggested Citation

Liu, Lili and Waibel, Michael, Managing Subnational Credit and Default Risks (July 1, 2010). World Bank Policy Research Working Paper No. 5362. Available at SSRN: https://ssrn.com/abstract=1645733

Lili Liu (Contact Author)

World Bank - Poverty Reduction and Economic Management Network (PREM) ( email )

Washington, DC 20433
United States

Michael Waibel

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

Lauterpacht Centre for International Law ( email )

5 Cranmer Road
Cambridge, CB3 9BL
United Kingdom

University of Cambridge - Jesus College ( email )

Jesus Lane
Cambridge, CB5 8BL
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
119
rank
230,307
Abstract Views
613
PlumX Metrics