In addition, given that local government debt comprises 27 of China s 2010 GDP, while central government debt and policy loans stand at 20 and 6 of GDP, respectively, the total public debt to GDP ratio is approximately 53 lower than Germany s. So, while China should not be complacent about local government debt, panic is unwarranted.

Governments may be able to mobilize funding through debt swaps, where donors exchange debt for local currency investment in environmental protection, such as waste water treatment.

In building local capacity, UNCTAD has decided to decentralize its Debt Management and Financial Analysis system programme, to the regional level.

It was noted that donor countries and multilateral financial institutions had been active in supporting these efforts and in providing debt guarantees to catalyse local private financing, ranging from microfinance to local currency bonds for infrastructure investment.

Local currency government debt markets have performed fairly well during the crisis, while local currency corporate debt markets have played a more modest role as a vehicle for longer term finance. This suggests that domestic reforms aimed at reducing issuance costs, improving disclosure requirements, enhancing creditors rights frameworks, and tackling other inhibiting factors could bring high returns.

Debt sustainability and debt relief

Another major risk of interest rate liberalization in China stems from rising public debt, particularly local government debt, which has grown significantly in the wake of the global financial crisis. A key parameter for determining the long run sustainability of public debt is the gap between interest rates and the nominal GDP growth rate.

Bankruptcy should allow local governments to renegotiate their bond debt and, perhaps, their retired employees pension and health care costs (that s up to a bankruptcy judge). The state would be expected to take over essential public services from bankrupt local governments.

The problem lies in a mismatch between their respective shares of tax revenues and mandatory expenditures. With local governments forced to cover a large proportion of public spending with a disproportionately low share of revenues, local government debt has swelled.

Several speakers pointed out the importance of avoiding the accumulation of foreign currency denominated debt and borrowing in local currency as a hedge against foreign exchange rate risk.

Debt

Debt

Debt?

External debt and debt servicing costs had also risen.

Debt for equity swaps Other debt for development swaps

Most economists failed to foresee the economic dynamics that actually led to the crisis, because they failed to pay enough attention to the rapid increase in US total debt. Instead, they focused exclusively on US foreign debt, ignoring household debt (mortgage and consumer debt), public debt, business debt, and financial debt.

As for Chinese banks, the main problem appears to be exposure to ballooning local government debt, which, according to the government, totaled 1.7 trillion (roughly 30 of GDP) at the end of 2010. Approximately half of this debt was on their books prior to the crisis.

We are not asking for debt forgiveness or debt cancellation.

Overall, short term debt and total debt service also declined.

But the economic and social costs are very high. Local governments are saddled with a mountain of debt and wasted investments, banks accumulate risky loans, and farmers lose their land.

External debt

Debt relief

External debt

External debt

1. Debt

Debt flows

Debt management

Debt conversion

In debt?

Options for lower debt burdens on Governments of heavily indebted developing countries include debt cancellation and debt swaps for sustainable development.

This led to increased concern about the levels of internal debt and total debt and the implications for servicing the debt.

To address the debt burden problem, many African countries at first resorted to repeated debt rescheduling which focused on debt service flows, resulting in steadily increasing debt stocks and related service payments.

(d) Debt burden

Restructuring Debt Restructuring

Europe s Debt Wish

China s Green Debt

Debt and Democracy

Does Debt Matter?

The Debt Delusion

Debt Without Drowning

Other debt renegotiations

Haiti External debt

External public debt

Debt rate ( GNP)

(c) External debt