In its first report on the general credit status of local governments in Japan, Standard & Poor's on Wednesday reported strong credit quality, but warned of high debts increasing the burdens on such local bodies.
Meager revenues caused by slow economic growth since 1990 and a growing reliance on borrowing have caused aggregate local government debt to balloon to 176 trillion yen, of which 127 trillion yen represents local government bonds as of March 2000.
"The (Home Affairs) Ministry works hard to make sure that no (local government) defaults on bond issues," said Paul Coughlin. The weakening of the entire system due to the prolonged recession and a widening gap between spending and revenue among local governments, however, are hampering the ministry's attempts to bail out local governments mired by irresponsible fiscal policies, he said.
Analysts said that although they were aware of growing public interest in the credit quality of local governments, it will be difficult for S&P to launch such a rating system due to a lack of transparency concerning debts held by local government enterprises and public-private partnerships.
So far only the Tokyo Metropolitan Government has requested a rating from S&P.
"It's quite clear that there is a large gap between spending and revenues," Coughlin said. "There's no magic solution, just conservative revenue spending."
He further criticized the dependence of many local governments on central government subsidies as weakening local bodies' ability to manage finances responsibly.
"Local governments don't have to rely on central governments for direction," he said. "It just takes clear sights to recognize the problem and the will to do something about it."