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Fitch: CN Accelerated Debt Swap Eases LGFV Burden, but Local Govt Structural Fiscal Risk Remains
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Fitch Ratings believed that China's in-depth debt swap will reduce the short-term debt burden of local government financing vehicles (LGFVs), but they fall short of addressing the structural financial risks faced by local and regional governments (LRGs). The Ministry of Finance (MOF) announced a plan, subject to congress approval, to increase the debt ceiling on a one-off basis and mobilize unused local government bond quotas so that local government bonds will replace LGFV debt (i.e., hidden debt) and settle outstanding payments to businesses. This incremental measure, set to be the largest in recent years, continues similar replacements with government debt first initiated in 2015. Fitch believed that the amount could be significantly larger than the RMB1.4 trillion and RMB1.2 trillion of local government bonds allocated for debt swap in 2023 and the year to date, respectively, and may recur annually until 2028, the final year of the MOF's 10-year plan to fully resolve hidden debt. This aligns with Fitch's previous expectations that the authorities will maintain support to ease funding pressures for LRGs and their corresponding LGFVs; however, the speed and scale of the measures are greater than anticipated. AAStocks Financial News |
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