Borrowing dynamics of Hungarian local governments – a decade of experience címmel jelent meg Vasvári Tamás és Pocsai Erzsébet írása a Regional Statistics folyóiratban.
Absztrakt
In-depth explorations of Hungarian local governments’ financial dynamics before 2010 and the factors influencing their indebtedness have been extensively presented in the literature. This trajectory led to debt consolidation and the centralisation of municipal responsibilities. Simultaneously, the central government aimed to mitigate public finance risks at the subnational level through active and passive regulatory measures. This study presents a comprehensive overview of the financial landscape, credit demand, and credit supply within the subnational sector over the last decade. Utilising a unique database comprising government decisions on local government borrowing requests spanning 2012 to 2022, we analyse the lending processes and criteria shaping government decisions. Our findings demonstrate the effective accomplishment of public finance objectives with local government debt notably below the European average and to the rate of the indebtedness slowing to one-third of its previous level. From a banking perspective, the local government sector’s role has shifted from active to passive lending, primarily driven by liquidity management considerations. However, the economic shocks witnessed in 2022 and the significant budget deficit that year highlight the risks associated with an excessive reliance on central transfers. While the active oversight of local government credit transactions has successfully counterbalanced the positive effects of debt consoledation on credit supply, it is crucial to acknowledge that beyond public finance considerations, political favouritism also influences the approval of loan transactions.
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