The Ministry of Finance, the central bank and the National Development and Reform Commission jointly issued a document outlining rules on how to deal with matured hidden debt accumulated by local government financing vehicles (LGFVs), the trickiest part in defusing the hidden debts of local governments, said Caixin.
The document provides clear guidelines on how the LGFVs can take out new borrowings to repay their old debts or roll over their debts. Related training will be conducted in late July.
The overall principle of the new document is to ensure the capital chain won’t be disrupted and to resolve the hidden debts gradually over several years, a provincial finance official told Caixin.
There have been no official data on local governments’ hidden debt, but some research institutes have estimated that such unofficial liabilities of most provinces could be more than two times their on-the-books borrowing, which stood at nearly RMB 18.4 trillion ($2.68 trillion) at the end of last year.
Economists from investment bank Nomura International (Hong Kong) Ltd. estimate that the off-balance sheet local government debt amounted to around RMB 40 trillion as of the end of last year, and the interest payments alone could reach RMB 600 billion in 2019.