Impact of financial and debt crisis on local and regional authorities. Frank Lierman, Chief Economist Belfius Bank ECOS, Committee of the Regions Brussels,

Impact of financial and debt crisis on local and regional authorities.

Frank Lierman, Chief Economist Belfius BankECOS, Committee of the RegionsBrussels , April 26, 2012

The financial and debt crisis.

Investments in danger.

How to restore the self-financing capacities ?

Limited financing capabilities of banks.

Alternatives for financing public facilities.

Impact of financial and debt crisis on local and regional authorities

2


3

The sequence of events.

Financial, economic, social, public finance & sovereign debt

4

Subnational revenues has been affected by the economic and public finance crisis.

Subnational revenue in the EU27 from 2000 to 2010

Subnational revenue by category in 2010 (% of total revenue)


5

Subnational expenditure : a global cost control combined whit higher level of social costs.

Subnational expenditure in the EU27 from 2000 to 2011

Subnational expenditure by category in 2010 (% of total expenditure)


6

Budget balance in danger.

Public budget balance in EU27 from 2000 to 2010 (% of GDP)

Subnational public budget balance in the EU27 from 2000 to 2010 (% of GDP)


7

Public debt increased sharply.The financial and debt crisis.

Public debt by sector in the EU27 from 2000 tot 2010 - % change

8

Public debt increased sharply. (2)The financial and debt crisis.

Public debt by sector in the EU27 from 2000 tot 2010 - % of GDP






9


A freezing or a reduction in central government transfers.

Stricter rules for borrowing.

Spending restrictions.

Reduced capacity to increase the tax burden

…


10

Austerity plans are not neutral.

Employer, service provider, economic agent, investor and national solidarity player

Expenditure : ≈ 17% of GDP and ≈ 34% of public spending

Direct investment : ≈ 65% of public sector


11

Essential services.

Subnational expenditure by economic function in the EU27 (% of total expenditure)

Replacement investments for renewing existing infrastructure and equipment (68% of all investments in EU)

Catch-up investments responding to demand/needs for : public infrastructure

renovation of buildings

innovation in transport

deployment of new technologies

More cyclical or one-off needs :local elections

2007 – 2013 Structural Funds envelopes

special events : cultural, sports, natural catastrophes, …

Major longer term issuesageing

sustainable environnement

Traditional counter-cyclical role


12

But essential services/investments cannot be reduced.






13 04/10/23



14

Structure of revenues and expenditures in EU27 in 2010.

Staff costs 34%

Social current spending16%

Subsidies & other currenttransfers

12%

Intermediate consumption

22%

Financial charges 2%

Direct capital exp. : 10%

Capital transfers : 4%

Assets revenue : 1,5%

Taxation40%

Grants46%

User charges : 10%

Others : 2,5%

(in % of total)

Revenuesmaintaining or enlarging tax revenues

boosting tariffs and fees

optimising assets revenues

optimising grants and subsidies captation

Expendituresreducing staff costs

better control on financial costs

improving control on social spending costs

reinforced cost control on purchases

implementing investment policies


15

Actions which can be undertaken.


16

The assets and liabilities composition as of December 2010 in EU27.

Deposits210

Other accounts receivable 93

Insurance technical reserves4

Shares 327

Loans99

Securities 32

Other accounts payable207

Loans721

Securities 103

Insurance technical reserves 8

Deposits : 2

Net financialliabilities : - 278 €bn

(in bn euro)






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Reduction of number of actors

Withdrawal of foreign banks

Increase of margins

Constraints of Basel III → less volumes, more expensive

Danger of credit crunch


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19


Alternatives for financing public facilities

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Which financing models ?

Maintain of demand Decrease of supply Foreseeable Credit Crunch+ =TOWARDS A NEW FINANCING MODEL FOR SUBNATIONAL PUBLIC SECTOR

TREND 1Outsourcing of the public facilities

financing

PPPpartnership

Service delegation toprivate sector

Leasing

TREND 2A broadening of funding sources

Public funding

Public bonds

Private placements

TREND 3A necessary “re-balanced” business

relaltionship with banks

Cash/depositmanagement

Other financialand non-financial

services

Perimeter extended to

other local actors

Alternatives for financing public facilities

21

Products and clients diversification in order to maintain funding capacities.

Subnationalgovernments

Public satellites

Other satellites

Energy

SocialServices

Waste Management

Healthcare

Social Housing

Water

Education

PublicTransportation

FinancingFinancingCash Management

Cash Management

DebtManagement

DebtManagement

FinancialAdvisory FinancialAdvisory

OperationalCar leasing OperationalCar leasing

HR Organisation

HR Organisation

Means ofPayment Means ofPayment

ElectronicBanking ElectronicBanking

AssetManagement

AssetManagement

Leasing Leasing

Real Estate Real

Estate

CorporateFinance CorporateFinance

Capital MarketsSolutions

Capital MarketsSolutions

Structured Finance

Structured Finance

Insurance Insurance

Hedge Solutions Hedge

Solutions

Impact of financial and debt crisis on local and regional authorities. Frank Lierman, Chief Economist Belfius Bank ECOS, Committee of the Regions Brussels,

Documents

public debt

debt crisis

public finance crisis

impact of financial

gdp slide

public sector investments

total expenditure slide

financing public facilities