Local indebtedness and its economic effects in Romania

Financing local public expenditures exclusively from regular budgetary resources represents for many local governments just a goal, given that their economic and fiscal capacity is at quite low levels. As a result, attracting other revenue for local budgets brings up discussion of local indebtedness, because other theoretically possible alternatives (such as public-private partnerships or grants) are related to the decisions of potential partners. Although the success of the decision to seek a local public loan depends in practice on local economic and fiscal capacity (which influences its financial credibility or the rating of the local community), public authorities have the possibility through appropriate regulations to support or inhibit local indebtedness. Thus, in accordance with commitments in terms of goals for public policy, the State can focus on convenient rules for authorizing local loans, methods of election of the creditors, legal capacity of local debt, local debt service, the borrowed amounts, etc., sustaining the formation of budgetary resources and, as a result, local development. In this context, there are specific interconnections between local development and indebtedness, the analysis of which is even more important in the case of countries that transitioned relatively recently to a market economy (as is the case of Romania), in order to adapt the practice of borrowing to the real needs of development for the local communities.

From this point of view, our work analyzes, in terms of quality and quantity, local indebtedness in Romania in the context of the recent economic and financial crisis, highlighting effects on economic development. The focus of the analysis includes regulatory aspects of local borrowing, indebtedness of local government capacity, level, structure and evolution of local debt, and identification of sources of malfunction or any inconsistencies in public policy matters and provision of alternative solutions to eliminate them. Taking into account the context and the current socio-political realities specific to Romania, as a member of the European Union, our evaluations will be carried out by reference to the developments in the regulation and practice of local indebtedness from other Member States of the Union. The qualitative and quantitative analysis will be based on both national and European regulations and incident databases of national authorities (Ministry of Public Finance, National Institute of Statistics) and Eurostat.