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About this project

This project intends to share best experiences available in the region of South East Europe in debt financing and managing complex capital investment projects, and thus support capacity development of both advanced and less advanced local governments. Improved information is intended also to lead to proposals for changes in laws and regulations that are restricting local borrowing in some countries.

The overall goal of the project is to support local governments in finding appropriate solutions for the financing and implementation of capital investment projects, also through policy improvements at national level advocated for by local government associations.

In this guide the project team analyzed recent trends (2010) in local government borrowing in Albania, Bulgaria, Croatia, Kosovo, Macedonia, Moldova, Montenegro, Republika Srpska – BiH, Romania, Serbia and Turkey.

The Guide consists of eight chapters. The first chapter of the Guide provides information on basic principles of local government borrowing and a summarized overview of the different financing policies, preconditions for local government borrowing and necessity of establishing a sound debt management.

The second chapter gives an overview of the present status of national legislation and the current practices in terms of borrowing. It also emphasizes the local government authority to borrow, issues related to municipal borrowing that are not addressed or are poorly addressed in the existing national legislation, and the reporting procedures.

Third and fourth chapters deal with the information related to available debt instruments and local governments' creditworthiness. These chapters provide both local governments and lenders with the fundamental understanding they need to consider debt financing in a prudent way. Fourth chapter is complemented with 5th chapter that describe the conceptual framework for local governments to undertake assessment on their creditworthiness and their general credit condition as well as to identify the underlying risks associated with their abilities to borrow and to repay its debt obligations. On the other hand they provide the financial community with the most important information it needs to assess the creditworthiness of local government borrowers. The issue on how local governments can improve their creditworthiness along with the fiscal indicators and assigning of the credit rating is also presented.

Chapter six of the Guide is to introduce potential local government creditors associated with different examples from the region of South East Europe. It also deals with market failures, the procurement procedures necessary to secure financial service providers and securing liquidity for EU funded projects.

Debt management practices and recommendations accompanied with loan structure and its' components is explained in detail in chapter 7.

The last chapter provides an overview of the role of the local government associations and how they can help the local debt legislation and credit market to be improved. The relations with different stakeholders in this process is described i.e. lenders, local governments, central governments, national parliaments, donors and international financial institutions.

We sincerely hope that this guide will enable municipalities to better understand their own financial situation and plan capital investment measures and eventually get better access to loans. These in turn will help to improve local infrastructure and service delivery from which all citizens and businesses alike will profit.