Local governments and the fiscal discipine framework Janis Platais 11.06.2018

Local governments and the fiscal discipline Eurozone countries are subject of a number of fiscal constraints, including floors on the government balance and the government debt. Local governments have independence in their financial management, while many Eurozone countries have been facing difficulties to coordinate the fiscal policy with independent financial operations of local governments. How to build effective coordination mechanisms? 11.06.2018 4th meeting of Baltic-Nordic independent fiscal institutions

Key pillars for local government fiscal management in Latvia Limits of annual borrowing have been set in the annual budget law. These effectively restrict the powers of the local governments to incur new debt. Financial stabilization of the local governments and the surveillance of the financial operations of local governments. MoF estimates of the outcomes of the operations of local governments. 11.06.2018 4th meeting of Baltic-Nordic independent fiscal institutions

Restricting local government borrowing Annual budget law establishes a ceiling for the total local government borrowing during the fiscal year To implement projects with support of EU or other foreign assistance To invest into education, energy efficiency, road, district heating, water and sewarage networks, and other specified projects Some other specified purposes, including the requirements for the financial stabilization of local governments Annual budget law limits local government gurantees to be issued during the year and prohibition to assume multi-year obligations beyond specifically authorized in the law Special powers for the Minister of Finance to approve borrowing exceeding 20% of local government own-source revenues 11.06.2018 4th meeting of Baltic-Nordic independent fiscal institutions

Financial stabilization Local governments facing extraordinary financial difficulties shall undergo financial stabilization A local government becomes subject of financial stabilization in circumstances of proven inability to pay its obligations on time or the amount of debt exceeds 20% of the local government budget The Minister of Finance appoints a supervisor for a local government under a stabilization to assist with the stabilization planning and monitoring The local government shall submit to the MoF a plan for the financial stabilization to restore the financial viability The Treasury would provide a loan to provide support for the stabilization effort 11.06.2018 4th meeting of Baltic-Nordic independent fiscal institutions

Accommodating local government fiscal results The MoF forecasts the impact of the local government financial operations on the global general government balance and adjusts the available fiscal space for the central government accordingly No new separate fiscal targets have been established for local governments except the reliance on the processes described earlier The role of the Fiscal council remains to ensure that the projections are reasonably reliable and to establish, if the deterioration cause risks for achieving the fiscal objectives 11.06.2018 4th meeting of Baltic-Nordic independent fiscal institutions

Thank you! Questions, comments, your country experiences Fiskālās disciplīnas padome Smilšu ielā 1-512 Rīgā LV-1919 Tālr.: +371 6708 3650 E-pasts: info@fdp.gov.lv Mājaslapa: http://fdp.gov.lv Twitter: @Fiskalapadome Facebook: fiskalapadome 11.06.2018