Local governments and the fiscal discipine framework

1. Local governments and the fiscal discipine framework Janis Platais

2. Local governments and the fiscal discipline • Eurozone countries are subject of a number of fiscal constraints, including floors on the government balance and the government debt. • Local governments have independence in their financial management, while many Eurozone countries have been facing difficulties to coordinate the fiscal policy with independent financial operations of local governments. • How to build effective coordination mechanisms? 4th meetingofBaltic-Nordicindependentfiscalinstitutions

3. Key pillars for local government fiscal management in Latvia • Limits of annual borrowing have been set in the annual budget law. These effectively restrict the powers of the local governments to incur new debt. • Financial stabilization of the local governments and the surveillance of the financial operations of local governments. • MoF estimates of the outcomes of the operations of local governments. 4th meetingofBaltic-Nordicindependentfiscalinstitutions

4. Restricting local government borrowing • Annual budget law establishes a ceiling for the total local government borrowing during the fiscal year • To implement projects with support of EU or other foreign assistance • To invest into education, energy efficiency, road, district heating, water and sewarage networks, and other specified projects • Some other specified purposes, including the requirements for the financial stabilization of local governments • Annual budget law limits local government gurantees to be issued during the year and prohibition to assume multi-year obligations beyond specifically authorized in the law • Special powers for the Minister of Finance to approve borrowing exceeding 20% of local government own-source revenues 4th meetingofBaltic-Nordicindependentfiscalinstitutions

5. Financial stabilization • Local governments facing extraordinary financial difficulties shall undergo financial stabilization • A local government becomes subject of financial stabilization in circumstances of proven inability to pay its obligations on time or the amount of debt exceeds 20% of the local government budget • The Minister of Finance appoints a supervisor for a local government under a stabilization to assist with the stabilization planning and monitoring • The local government shall submit to the MoF a plan for the financial stabilization to restore the financial viability • The Treasury would provide a loan to provide support for the stabilization effort 4th meetingofBaltic-Nordicindependentfiscalinstitutions

6. Accommodating local government fiscal results • The MoF forecasts the impact of the local government financial operations on the global general government balance and adjusts the available fiscal space for the central government accordingly • No new separate fiscal targets have been established for local governments except the reliance on the processes described earlier • The role of the Fiscal council remains to ensure that the projections are reasonably reliable and to establish, if the deterioration cause risks for achieving the fiscal objectives 4th meetingofBaltic-Nordicindependentfiscalinstitutions

7. Thank you! Questions, comments, your country experiences Fiskālās disciplīnas padomeSmilšu ielā 1-512 Rīgā LV-1919Tālr.: +371 6708 3650E-pasts: info@fdp.gov.lvMājaslapa: http://fdp.gov.lv Twitter: @FiskalapadomeFacebook: fiskalapadome