The FINANCIAL — The World Bank’s Board of Executive Directors on January 10 approved two loans – at $200 million each – to China to support the governments of Hunan province and Dadukou District in Chongqing Municipality in developing a strong and sustainable foundation for their finances.
Under the World Bank-supported program, Hunan and Dadukou governments, which already are actively implementing China’s new budget law, will develop forward-looking, comprehensive and transparent public finance frameworks that integrate budget, public investment and debt management, according to the World Bank.
“As part of our current reform program, we have put great effort to control the size of further government investments and prevent the further buildup of fiscal vulnerabilities and debt,” said Du Jiahao, Party Secretary of Hunan Province. “This project has combined Hunan’s reform practice with the World Bank’s experience to further improve government debt management in our province. We are pleased with World Bank’s support, and believe this project will set an example for Chinese local governments in how to control and manage government debt risk with a modern management approach.”
“The World Bank Development Policy Financing Operation not only fits well with the current direction of ongoing fiscal reforms, but also provides new ideas and methods for addressing the District’s problems for achieving fiscal sustainability. We are confident that this cooperation will have a significant and long-lasting impact on Dadukou District’s economic development and fiscal reform,” said Yao Bin, head of Dadukou District Government of Chongqing Municipality.
“We are pleased to support the fiscal reform programs of Hunan Province and Chongqing’s Dadukou District with the aim of improving efficiency in public resource management and placing their finances on a sustainable path. We hope these operations will contribute to China’s efforts to achieve fiscal sustainability at the subnational level, which is vital for sustainable growth,” said Bert Hofman, World Bank Country Director for China.
This is the first time that China has made use of the World Bank’s Development Policy Financing (DPF), an instrument aimed to support institutional and policy reforms through budget financing, which is subject to the borrower’s own implementation processes and systems. “The DPF instrument enables deep cooperation and discipline at the subnational level around an ambitious reform program,” said John Litwack, World Bank Lead Economist for China and co-task leader of the operations.
The Hunan Fiscal Sustainability Development Policy Financing and Chongqing-Dadukou District Fiscal Sustainability Development Policy Financing support a number of activities in budget reform, including:
Developing and employing a medium-term fiscal/debt sustainability framework for managing risks and promoting the fiscal sustainability;
Developing an integrated approach to capital budgeting to improve efficiency;
Developing an effective system at the provincial level of government to monitor the financial health of local governments and incentivize them to pursue prudent debt management (for Hunan Province);
Enhance transparency and accountability in the use of budget resources.
“These two operations are showing the way on how to implement critical fiscal reforms. These reforms require not only policy changes, but changes in the mindset and the development of new institutional arrangements and capacities as well. We hope they will have an important catalytic and demonstration effect across China’s subnational governments, with a far reaching positive impact for China,” said Min Zhao, World Bank Senior Economist and co-task leader.