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Most Local And Regional Governments Will Moderate Debt Accumulation By 2025, Says Reports

This report does not constitute a rating action.

LONDON (S&P Global Ratings) March 5, 2024--Gross borrowing by local and regional governments (LRGs) globally is likely to remain elevated but should fall over the next two years due to lower funding needs, S&P Global Ratings said in "Subnational Debt 2024: Focus on Debt Sustainability".

The report, the lead article in a series on subnational debt, forecasts though that net borrowing by LRGs will mostly remain flat. A notable exception is likely to be China, where net borrowing is expected to fall following completion of a planned swap transaction between LRGs and financing vehicles, and as Chinese LRGs' increasingly focus on limiting debt build-up. The report also projects that LRG debt will grow in India, while Japan and Switzerland will deleverage.

Across Europe, most LRGs will be constrained by balanced-budget requirements and slow economic growth. "Subnational Debt 2024: Infrastructure Spending Succumbs To Economic Slowdown ," notes that European LRGs will increase investment by only 2% over 2024-2025, mainly supported by EU funds and in response infrastructure needs and migration.

Elsewhere, "Subnational Debt 2024: Fiscal Policy Differences Influence Borrowing In Developed Markets ," explains why we expect Australian states' and Canadian provinces' net borrowing to generally stabilize, albeit at higher than pre-pandemic levels, as they focus on infrastructure investment that should contribute to economic growth.

"Subnational Debt 2024: Chinese Governments Reach Their Limits; Other Emerging Markets Taper Borrowing," predicts that beyond China and India, emerging market LRGs' borrowings will mostly decrease and will almost entirely be used for refinancing. Meanwhile, Latin American LRGs will continue to delay investments, mainly due to limited access to external funding and declining central government transfers.

"Subnational Debt 2024: Global LRGs Can Handle Rising Interest Expenses," notes that interest expenses will generally increase pressure on LRGs' budgets, with relief only likely if interest rates decline faster than we expect, or if LRGs reduce their deficits. We view this pressure as moderate worldwide. However, increasing deficits or higher-for-longer rates could quickly reduce budget flexibility, especially where debt is high or repricing is rapid.

The series of articles on subnational debt is available on RatingsDirect and includes:

The report is available to RatingsDirect subscribers at www.capitaliq.com. If you are not a subscriber, you may purchase a copy of the report by emailing research_request@spglobal.com. Ratings information can also be found on S&P Global Ratings' public website by using the Ratings search box at www.spglobal.com/ratings. Alternatively, call S&P Global Ratings' Global Client Support Line (44) 20-7176-7176.

Primary Credit Analyst:Felix Ejgel, London + 44 20 7176 6780;
felix.ejgel@spglobal.com
Secondary Contact:Noa Fux, London + 44 20 7176 0730;
noa.fux@spglobal.com

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