Sustainability of Local Government Sector Debt. Evidence from Monte-Carlo Simulations

Kluza, Krzysztof

doi:10.4335/115-132(2016)

Cited by 11 publications

(6 citation statements)

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“…Even though the search has yielded plenty of literature, there have not been many that focus on economics and forecasting. Particularly, Kluza (2016) focuses on simulations regarding the sustainability of the government debt levels. He finds that some scenarios indicate a high vulnerability of the local governments to changes in the interest rates.…”

Section: Literature Reviewmentioning

confidence: 99%

The Probability of Uncertainty: Romania’s Growth Perspectives

Gavris

Toader

2021

AUOES

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This paper follows the already existing literature to address three main pressing concerns that Romania is currently facing with respect to sustainable development and economic growth, which has likely been impeded as a direct consequence of the ongoing sanitary crisis. The research questions of this paper were asked with the consideration of finding possible solutions to the current developments. These questions were “How will the global health crisis project on Romania’s GDP growth in 2021 and going forward?”, “To what extent can Romania face its current challenges with respect to the budgetary pressures?”. The research itself was conducted using the R programming language with quantitative data, namely quarterly GDP starting from 2005 Q1 onwards and its main objective is to simulate Romania’s GDP to answer the aforementioned questions. Therefore, this research is empirical in the sense that it derives the simulated data from real data which was taken from Eurostat. The main findings of this research were that Romania’s GDP could grow by a mean 3.2% in 2021, which is more conservative than the existing institutional forecasts made by the European Commission, the International Monetary Fund, World Bank and the Romanian National Commission for Strategy and Forecasting, implying that the majority of the simulated outcomes have been in that respective range of values. Moreover, this research also finds that consumption is expected to increase by approximately 4.2% and that the budget deficit relative to GDP could go as low as to negative 7.8%. This paper creates value for future policymaking as it proposes solutions which could help Romania going forward. Thus, this paper creates value for not only the policymakers but the society as a whole.

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Section: Literature Reviewmentioning

confidence: 99%

The Probability of Uncertainty: Romania’s Growth Perspectives

Gavris

Toader

2021

AUOES

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“…Thus, the sector gained an additional cushion for debt service, but it became vulnerable to future interest rate increases. This risk is analyzed in Kluza (2016b) with the application of Monte Carlo simulations. They show that even an increase of market interest rates back to the level of 2013, combined with a certain increase of operating expenses, may cause financial strains for over 300 LGs.…”

Section: Statutory Limits Versus Corporate Finance Approachmentioning

confidence: 99%

Risk assessment of the local government sector based on the ratio analysis and the DEA method. Evidence from Poland

Kluza

2017

Eurasian Econ Rev

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The local government (LG) sector plays an important role in the EU economies. Besides providing a vast range of public services, it accounts for over 8% of total investment. The crisis, which started in 2008, resulted in increased LG indebtedness and raised concerns over the sector's debt repayment capacity. This paper proposes an alternative methodology of risk assessment of LGs to statutory debt limits, the Altman model and non-financial indicators. Firstly, it employs a corporate finance approach to evaluate the financial standing of individual entities. The measures are based on free operating cash flow and net debt. Next, Data Envelopment Analysis is used to derive the relative performance of LGs in debt utilization. The indicators used are available from the LG financial reports and also allow risk to be monitored on a quarterly basis. The proposed approach allows the ranking of the risk of individual LGs according to both their debt service capacity and long-term ability to manage costs and carry out a rational investment policy. The results obtained using the DEA method also enable the identification of LGs with persistently inferior risk profile. The quantitative analysis is conducted for the local governments in Poland for the period 2008-2015.

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“…In 2013 there was some improvement in LGs' risk profile compared to 2011, however that was mainly due to a drop in market interest rates. Detailed research devoted to the sustainability of the LG sector debt under various scenarios of interest rate increases is presented in (Kluza 2016).…”

Section: Changes Of Unsystematic Risk In the Local Government Sectormentioning

confidence: 99%

Changes in the credit risk profile of polish local governments. An assessment of unsystematic risk

Kluza¹

2017

Argumenta Oeconomica

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The paper presents research devoted to changes in the local government credit risk profile in Poland. Firstly, the risk assessment is conducted based on the free operating cash flow and net debt approach as a preferred alternative to the statutory debt limits. Then, using the Data Envelopment Analysis method, an analysis is conducted of changes of unsystematic risk of local government subcategories during the period of economic slowdown. The study finds that the general risk profile of local governments strongly deteriorated compared to the precrisis year of 2008. Since 2011 it has slightly improved. However, this partial improvement was mainly due to a drop in market interest rates in 2013. Adjusting data for this factor reveals that the financial standing would not have changed in a positive way. Two local government subcategories have relatively inferior risk profiles. The first one is the towns with county rights, which represent more than one third of the population and revenues of the local government sector. They have the highest debt levels compared to their debt service capacities, and some of them accumulated high unsystematic risk. Approximately 20% of them have debt service indicators below safe levels. The second category is the counties. Despite relatively low debt levels, there is high systematic risk in this group. Without system reform of the counties, approximately 25% of them may have problems with performing their statutory tasks or servicing their debt in the medium term. The rural boroughs are the safest local government category in Poland.

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Sustainability of Local Government Sector Debt. Evidence from Monte-Carlo Simulations

Cited by 11 publications

References 0 publications

The Probability of Uncertainty: Romania’s Growth Perspectives

The Probability of Uncertainty: Romania’s Growth Perspectives

Risk assessment of the local government sector based on the ratio analysis and the DEA method. Evidence from Poland

Changes in the credit risk profile of polish local governments. An assessment of unsystematic risk

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