Hunan Fiscal Sustainability DPO

closed

This First Hunan Fiscal Sustainability Development Policy Financing supports the Hunan Provincial Government to achieve fiscal sustainability by developing a forward‐looking, comprehensive and transparent public finance framework that integrates budget,public investment and debt management. The four pillars of the DPF are: (a) putting provincial finances on a fiscally sustainable path; (b) improving the efficiency and comprehensiveness of public investment planning; (c) better monitoring and regulating debt management of local governments in the Province; and (d) promoting transparency. China is now a high middle‐income country, and well positioned to become a high income country in the next decade. China’s exceptionally rapid growth and development in recent decades has served the country well, but can also be associated with economic, environmental and social imbalances. While growth in China still remains high by international standards, macroeconomic risks have increased, including in the form of rapidly rising debt. The Chinese Government has recognized the seriousness of this problem, and has introduced a major reform in 2014 to bring subnational debt under control and reorient subnational officials and budgetary institutions toward fiscal / debt sustainability. Hunan Province and Chongqing Municipality were chosen as regions to pilot World Bank development policy financing operations focused on budget reforms to achieve fiscal sustainability at the subnational level. Hunan is a province of 67.4 million people (equivalent to the size of France), covering an area of 211.8 thousand square kilometers. This World Bank Development Policy Financing for USD 200 million will assist the Hunan Province Government realize reforms to place its public finances on a sustainable path. This Development Policy Financing will support budget reform in Hunan Province in two primary ways: (i) it will assist the Provincial Government directly in restructuring its budgets and capital investment plans toward fiscal sustainability and increased efficiency; (ii) it will support innovative approaches already underway in Hunan Province to use the new provincial allocation authority over new borrowing and debt swaps to incentivize local governments toward reforms and the disclosure of key information.