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From Easy-term Budgeting Loans to Well-Developed Market of Debts Agnieszka Kopańska [email protected] Faculty of Economic Science; Warsaw University Poland Local governments (lg.) in Poland Tasks • 2489 gminas (primary education, water and waste-water services, solid waste services, local roads, public housing, land-use and urban planning, some social welfare functions, some cultural functions, preventative public health) • 374 poviats (secondary education, local roads, inspection and permitting services, some land use planning, some cultural functions, local labor market policy, some social welfare functions, ownership and management of primary health care institutions – excluding financing) • 16 voivodships (secondary education, culture, roads, inspectorates, regional development planning, supervision of self- standing regional health care and environmental funds) Lg. revenues in relation to all public revenues 30% voivodships 25% poviats 20% cities with poviat rights 15% 10% gminas 5% 0% 1995 1996 1997 1998 1999 2000 2001 Legal framework of lg. indebtedness - methods and purposes • Methods of borrowing: • Loans & cerdits • Bonds Purpouses of incuring debt: 1. debt associated with cash flow problems, has to be repaid within the current year –short term debt 2. debt contracted to cover budget deficit of a local government unit that has to be specified in that unit’s budget – long term debt Legal framework of lg. indebtedness – debt limits •Total amount of loan/credit instalments to be repaid in a particular budgetary year and potentially payable amounts under any collaterals extended by gmina, including interest on credits/loans, and the amount of local government’s securities with maturity falling in that year, may not exceed 15% of the planned local government unit’s revenues (Art. 113, Public Finance Law) •total indebtedness as of budgetary year end may not exceed 60% of revenues in that particular budgetary year (Art. 114) Legal framework of lg. indebtedness – debt limits •the maximum zloty-expressed debt value must be known on the day of transaction •this is not applied to credits extended by international financial institutions like the World Bank and EBRD, and also commercial banks administering credit lines from such institutions. Legal framework of lg. indebtedness - debt limits •If the consolidated public debt (the total debt and guarantees of the national government plus the total debt and guarantees of local governments, minus loans and guarantees between levels of government) exceeds 50 percent of the GDP then the planned deficit amount of each local government unit may not be higher than the planned deficit of State budget for that particular year. •More restrictive limitations occur once the public debt is in excess of 55% and 60% GDP Changes in real gminas’ revenues 1993-2001 (in %) 50,0% 40,0% 30,0% 20,0% 10,0% 0,0% -10,0% 93/92 94/93 95/94 96/95 97/96 98/97 99/98 00/99 01/00 rural gminas 7,8% 9,4% 12,8% 46,6% 13,0% 1,7% -1,8% -2,5% 2,3% rural-cities 10,6% 6,1% 11,2% 35,2% 12,4% 2,5% -1,7% -2,9% 3,1% cities (with cities with poviat 11,9% 21,6% 1,8% 21,1% 9,8% 6,2% 9,3% 0,0% 2,5% rights) Lg. capital expenditures in total expenses 1995 1996 1997 1998 1999 2000 2001 All levels 23,2% 22,0% 23,5% 22,5% 18,7% 17,4% 16,66% Gminas x x 25,6% 23,9% 21,9% 20,6% 19,09% Cities with the poviat rights x x 19,5% 19,9% 17,2% 16,1% 15,30% Poviats x x x x 6,5% 7,5% 8,78% Voivodships x x x x 31,7% 28,7% 27,82% Project finance sources 1997- 2000 Project finance sources Earmarked grants Own revenues + tax share + subsidies Deferred surplus Bond revenues 1995 1996 1997 1998 1999 2000 22.99% 21.96% 26.32% 25.56% 93.81% 89.10% 62.45% 61.04% 60.54% 45.19% 0,00% 0,50% 3.09% 2.45% 2.05% 8.39% 1.01% 1.67% 0.82% 3.72% Loans/credits 6.19% 10.40% 10.46% 12.88% 10.27% 17.14% Source:- Raport RIO LG’s borrowers • Soft loans – Enviromental Funds and other • Commercial banks • Other investors via capital market (bonds) Gmina’s Borrowing: 1995-1998 7 000 000 '1.000 zł in 2001 r. 6 000 000 5 000 000 4 000 000 3 000 000 2 000 000 1 000 000 0 non-commercial debt bonds bank credits 31.12.94 31.12.95 31.12.96 31.12.97 31.12.98 1 231 516,69 1 412 108,52 2 048 667,16 3 351 701,40 2 002 692,99 0,00 0,00 216 553,90 582 274,86 900 866,06 484 766,99 zł 727 318,83 zł 1 320 561,08 zł 1 938 729,50 zł 2 656 436,13 zł LG’s credits In commercial banks’ portfolio in 1995-2001 7 000 000 6 000 000 >5 years 1000PLN; 2001 r 5 000 000 1-5 years of maturity credits 4 000 000 3 000 000 up to 1 year of maturity credits 2 000 000 1 000 000 0 31.12.95 31.12.96 31.12.97 31.12.98 31.12.99 31.12.00 31.12.01 Number of bonds issues by value: 1996-2001 Number of issues in year Value of Issue in mln PLN: (0-5> (5-10> (10-20> under 20 All Issues 1996 1997 1998 1999 2000 2001 2 2 2 4 10 13 2 3 1 19 12 2 0 5 19 10 3 2 0 15 25 13 4 5 46 38 15 9 8 70 Minimum value of issue Maximum value of issue 0.9 1.3 0.95 1 0,7 0,8 99.3 25 206.3 20 144 105 Some barriers for proper use of debt by Polish LGs: • Concerns among local officials of running into debt; • Lack of knowledge about building long range financial and investment policy; • Misunderstanding of the basic rules of local finance (payas-you-go finance) • Highly politicized governing of local authoritiescorrelation between election cycle and investment policy; • Unstable legal framework;