Impact of financial and debt
crisis on local and regional
authorities.
Frank Lierman, Chief Economist Belfius Bank
ECOS, Committee of the Regions
Brussels , April 26, 2012
Impact of financial and debt crisis on local and
regional authorities
The financial and debt crisis.
Investments in danger.
How to restore the self-financing capacities ?
Limited financing capabilities of banks.
Alternatives for financing public facilities.
2
The financial and debt crisis.
The sequence of events.
Financial, economic, social, public finance & sovereign debt
3
The financial and debt crisis.
Subnational revenues has been affected by the economic and public finance crisis.
Subnational revenue in the EU27
from 2000 to 2010
4
Subnational revenue by category in
2010 (% of total revenue)
The financial and debt crisis.
Subnational expenditure : a global cost control combined whit higher level of
social costs.
Subnational expenditure in the
EU27 from 2000 to 2011
5
Subnational expenditure by category in
2010 (% of total expenditure)
The financial and debt crisis.
Budget balance in danger.
Public budget balance in EU27 from
2000 to 2010 (% of GDP)
6
Subnational public budget balance in the
EU27 from 2000 to 2010 (% of GDP)
The financial and debt crisis.
Public debt increased sharply.
Public debt by sector in the EU27 from 2000 tot 2010 - % change
7
The financial and debt crisis.
Public debt increased sharply. (2)
Public debt by sector in the EU27 from 2000 tot 2010 - % of GDP
8
Impact of financial and debt crisis on local and
regional authorities
The financial and debt crisis.
Investments in danger.
How to restore the self-financing capacities ?
Limited financing capabilities of banks.
Alternatives for financing public facilities.
9
Investments in danger.
Austerity plans are not neutral.
A freezing or a reduction in central government transfers.
Stricter rules for borrowing.
Spending restrictions.
Reduced capacity to increase the tax burden
…
10
Investments in danger.
Essential services.
Employer, service provider, economic agent, investor and national
solidarity player
Expenditure : ≈ 17% of GDP and ≈ 34% of public spending
Direct investment : ≈ 65% of public sector
Subnational expenditure by economic function in
the EU27 (% of total expenditure)
11
Investments in danger.
But essential services/investments cannot be reduced.
Replacement investments for renewing existing infrastructure and equipment
(68% of all investments in EU)
Catch-up investments responding to demand/needs for :
public infrastructure
renovation of buildings
innovation in transport
deployment of new technologies
More cyclical or one-off needs :
local elections
2007 – 2013 Structural Funds envelopes
special events : cultural, sports, natural catastrophes, …
Major longer term issues
ageing
sustainable environnement
Traditional counter-cyclical role
12
Impact of financial and debt crisis on local and
regional authorities
The financial and debt crisis.
Investments in danger.
How to restore the self-financing capacities ?
Limited financing capabilities of banks.
Alternatives for financing public facilities.
13
4/13/2015
How to restore the self-financing capacities ?
Structure of revenues and expenditures in EU27 in 2010.
(in % of total)
Assets revenue : 1,5%
Staff costs
34%
Taxation
40%
Social current spending
16%
Subsidies & other current
transfers
12%
Intermediate
consumption
22%
Grants
46%
Financial charges 2%
14
Direct capital exp. : 10%
User charges : 10%
Capital transfers : 4%
Others : 2,5%
How to restore the self-financing capacities ?
Actions which can be undertaken.
Revenues
maintaining or enlarging tax revenues
boosting tariffs and fees
optimising assets revenues
optimising grants and subsidies captation
Expenditures
reducing staff costs
better control on financial costs
improving control on social spending costs
reinforced cost control on purchases
implementing investment policies
15
How to restore the self-financing capacities ?
The assets and liabilities composition as of December 2010 in EU27.
(in bn euro)
Net financial
liabilities :
- 278 €bn
Other accounts
receivable 93
Insurance technical reserves
4
Shares
327
Other accounts payable
207
Insurance technical reserves
8
Loans
721
Loans
99
Securities 32
Deposits
210
Securities 103
Deposits : 2
16
Impact of financial and debt crisis on local and
regional authorities
The financial and debt crisis.
Investments in danger.
How to restore the self-financing capacities ?
Limited financing capabilities of banks.
Alternatives for financing public facilities.
17
Limited financing capabilities of banks.
Reduction of number of actors
Withdrawal of foreign banks
Increase of margins
Constraints of Basel III → less volumes, more expensive
Danger of credit crunch
18
Impact of financial and debt crisis on local and
regional authorities
The financial and debt crisis.
Investments in danger.
How to restore the self-financing capacities ?
Limited financing capabilities of banks.
Alternatives for financing public facilities.
19
Alternatives for financing public facilities
Which financing models ?
Maintain of demand
+
Decrease of supply
=
Foreseeable Credit Crunch
TOWARDS A NEW FINANCING MODEL FOR SUBNATIONAL PUBLIC SECTOR
TREND 1
Outsourcing of the public facilities
financing
PPP
partnership
20
Service
delegation to
private sector
Leasing
TREND 3
TREND 2
A broadening of funding sources
Public
funding
Public
bonds
Private
placements
A necessary “re-balanced” business
relaltionship with banks
Cash/deposit
management
Other financial
and non-financial
services
Perimeter
extended to
other local
actors
Alternatives for financing public facilities
Products and clients diversification in order to maintain funding capacities.
Cash
Management
Debt
Management
Energy
Electronic
Banking
Public
Transportation
Other satellites
Capital Markets
Solutions
Social
Services
Public satellites
Means of
Payment
Asset
Management
Financing
Subnational
governments
Education
Corporate
Finance
Waste
Management
Real
Estate
Hedge
Solutions
Water
Healthcare
Social
Housing
Leasing
21
Structured
Finance
Operational
Car leasing
Financial
Advisory
Insurance
HR
Organisation