BOFIT Viikkokatsaus / BOFIT Weekly Review 2016/48
The IMF estimates that the indebtedness and other liabilities of local governments totalled roughly 40 % of GDP at the end of 2015. Local governments this year have issued about two times more bonds than a year ago. Some of these assets have been used to pay off more expensive bank loans. The debt situation varies considerably across provinces, however. A finance ministry official interviewed by the Caixin news agency in November said that debt levels of some local governments were alarmingly high, along with a degraded ability to service that debt. Despite the risks, the yields on local government bonds are nearly the same as government bonds, and the government’s latest measures did little to change the situation. If local governments find themselves in great difficulties, the central government might be forced to bail them out, even if it had given repeated warnings that it would not.