OECD experience with strenghthening fiscal capacities for subnational public investment

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1 Leopolis Hall Prospekt Svobody, L viv, Ukraine 22 June 2017 OECD experience with strenghthening fiscal capacities for subnational public investment Isabelle CHATRY Project manager, subnational finances & territorial reforms CFE - Decentralisation, public investment and Subnational Finance Unit

2 Subnational governments are key economic and social actors in the OECD % of general government 2015 OCDE Minimum Maximum Ukraine 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Canada Canada 89%** Canada 63% 59% Canada Canada 56% 40% 31% 33% 20% Chile 18% Greece Ireland Estonia Chile 1% Expenditure Staff expenditure* Investment Tax revenue Debt* ***: Debt OECD definition ie including, in addition to "financial debt", insurance reserves and other accounts payable. Source: OECD (2017) Subnational governments in OECD countries: key data for OECD countries and IMF for Ukraine

3 SNG investment as a % of public investment On average, SNGs account for 40% of public investment worldwide (2013) 90% BEL CAN 80% JPN MEX VNM AUS ZAF CHE 70% DEU ESP ARG NLD PER UWA KAZ NGA ISR federal FRA 60% BRA MDA KOR UKR ITA AUT USA IND IRL PRT CZE BGR FIN THA POL CHN 50% LVA GHA COL SVN ROU SRB DNK SWE IDN CPV RUS ISL MNE NZL LUX NOR 40% HUN GBR TUR LTU UWA all HND EST CYP UWA SLV GEO TUN unitary ECU 30% SVK HRV MNG GRC KEN MAR PSE ALB TZA 20% GRM MYS ZWE PRY CRI JOR 10% ARM MUS CHL BEN MLT KGZ DOM UGA SEN BFA MWI MLI KHM GIN AZE 0% 0% 1% 2% 3% 4% 5% 6% 7% Subnational investment as a % of GDP Source: OECD/UCLG (2016) Subnational around the world: structure and finance

4 SNG investment as a % of GDP is higher in upper middle income countries (2013) SNG investment as a % of GDP by income groups 2.0% 1.8% 1.6% 1.4% 1.5% 1.4% 1.7% 1.6% 1.2% 1.0% 0.8% 0.6% 0.4% 0.4% 0.2% 0.0% All countries Low income Lower middle income Upper Middle income High income Source: OECD/UCLG (2016) Subnational around the world: structure and finance

5 Canada Belgium Ukraine Mexico Israel Japan Spain Australia Switzerland Germany United States OECD35 Italy France Finland Korea EU Sweden Netherlands Czech Republic Poland Austria Slovenia Portugal Denmark Norway New Zealand Hungary Iceland United Kingdom Luxembourg Latvia Turkey Estonia Slovak Republic Greece Ireland Chile Subnational governments account for almost 60% of public invesment in the OECD on average and 89% in Ukraine % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Subnational government Central government & social security 89% 59% 53% Source: OECD (2017) Subnational governments in OECD countries: key data for OECD countries and IMF for Ukraine

6 Strong fluctuations of subnational investment in Ukraine over % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Subnational investment as a % of public investment Source: OECD based on IMF data 6

7 New Zealand Hungary Luxembourg Greece Turkey Slovenia Czech Republic Israel Slovak Republic Korea France Japan Portugal Poland Latvia Estonia Ireland Norway Australia OECD35 Netherlands Mexico United States EU Finland Italy Canada Chile Sweden United Kingdom Ukraine Iceland Switzerland Austria Spain Belgium Germany Subnational investment represents 11% of subnational expenditure in the OECD on average and 8% in Ukraine % 34% 35% 30% 25% 20% 15% 10% 05% 11% 10% 8% 5% 00% Source: OECD (2017) Subnational governments in OECD countries: key data for OECD countries and IMF for Ukraine

8 Canada Japan Korea Czech Republic Hungary Finland Sweden Belgium Switzerland Slovenia France Australia Norway Poland United States OECD35 Spain Netherlands EU28 Slovak Republic New Zealand Germany Denmark Mexico Italy Latvia Estonia Austria Israel Ukraine Luxembourg Iceland Portugal United Kingdom Greece Turkey Chile Ireland Subnational investment accounts for 1.5% of GDP in the OECD on average and 1.1% in Ukraine % 3.6% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 1.8% 1.5% 1.1% 0.5% 0.0% 0.3% Source: OECD (2017) Subnational governments in OECD countries: key data for OECD countries and IMF for Ukraine

9 In Ukraine, strong fluctuations of subnational investment which is highly volatile ( ) Central and subnational government investment as a % of GDP Source: OECD based on IMF data 9

10 Priority sectors for subnational investment in the OECD in 2015 Economic affairs and transport General services Environmental protection Education Housing and community amenities Other Greece Ireland Australia Portugal Japan United States Slovak Rep. Spain OECD30 United Kingdom Austria France Israel Germany Korea Czech Rep. Iceland Italy Belgium Switzerland Norway Slovenia Sweden Latvia Hungary Source: OECD (2017) Subnational governments in OECD countries: key data 40% 21% 9% 9% 6% 15% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

11 Indirect Direct Investment sources of funding Gross savings Investment grants & susbsidies Depends on subnational government capacities to : Generate room for manouver in terms of operating expenses relative to operating revenue (self-financing capacity): make the most of taxes, user charges and income from subnational assets. Having an liquid cash position. Subnational government can apply for grants from central government, other subnational governments and international organisations (e.g. European Union, donors) Borrowing Loans: national treasury; specific funds; public and private banks at regional, national or international levels; local funding agencies. Bonds issuance: individual or collective, on international or domestic financial markets, through public issuing or private placements, with institutional or retail investors. Source: OECD Total or partial outsourcing of investment SNGs may have access to different solutions: Project s bearing by another public entity: o inter-municipal groupings or associations o local public companies. Public-private Partnerships Private equity Alternative innovative financing mechanisms

12 Revenue sources vary across countries in the OECD and Ukraine % of subnational revenue, 2015 Tax revenue tariffs and fees Property income Grants and subsidies Social contributions Iceland Latvia Germany New Zealand Switzerland Sweden Canada United States France Japan Finland Israel OECD % 37.7% Italy Chile Czech Republic EU Spain Portugal Slovenia Norway Denmark Korea Australia Poland Ukraine 30.2% 6.3% 59.8% Hungary Luxembourg Greece Belgium Ireland United Kingdom Turkey Netherlands Austria Mexico Slovak Republic Estonia Source: OECD (2017) Subnational 0% governments 20% in OECD countries: 40% key data 60% 80% 100% 12

13 Indirect Direct Investment sources of funding Gross savings Investment grants & susbsidies Borrowing Depends on subnational government capacities to : Generate room for manouver in terms of operating expenses relative to operating revenue (self-financing capacity): make the most of taxes, user charges and income from subnational assets. Having an liquid cash position. Subnational government can apply for grants from central government, other subnational governments and international organisations (e.g. European Union, donors) Loans: national treasury; specific funds; public and private banks at regional, national or international levels; local funding agencies. Bonds issuance: individual or collective, on international or domestic financial markets, through public issuing or private placements, with institutional or retail investors. Source: OECD Total or partial outsourcing of investment SNGs may have access to different solutions: Project s bearing by another public entity: o inter-municipal groupings or associations o local public companies. Public-private Partnerships Private equity Alternative innovative financing mechanisms

14 Subnational government debt as a % of public debt Subnational government debt in the OCDE 20% of public debt, ie 24% of GDP (2015) December % Canada 50% Switzerland Norway 40% Estonia Germany 30% Sweden Australia Spain United States Denmark OECD35 20% Latvia Finland Belgium Japan Netherlands Iceland Israel Turkey Austria 10% Korea UK Lux. Czech Rep. Poland France Slovak Rep. Italy Ireland Portugal Slovenia 00% Greece Hungary 00% 10% 20% 30% 40% 50% 60% 70% Subnational government debt as a % of GDP Source: OECD (2017) Subnational governments in OECD countries: key data 14

15 Composition of subnational debt by type of liabilities (%, 2014) Loans Currency and deposits Other accounts payable Debt securities Insurance pensions and standardised guarantess GRC IRL LUX PRT FRA BEL NDL POL SVK ESP ISR ITA AUT NOR FIN JPN SVN ISL EST DNK CZE TUR GBR DEU AUS CHE SWE OECD31 HUN KOR CAN USA 0 % Source: OECD (2016) Regions at a Glance

16 Indirect Direct Investment sources of funding Gross savings Investment grants & susbsidies Borrowing Depends on subnational government capacities to : Generate room for manouver in terms of operating expenses relative to operating revenue (self-financing capacity): make the most of taxes, user charges and income from subnational assets. Having an liquid cash position. Subnational government can apply for grants from central government, other subnational governments and international organisations (e.g. European Union, donors) Loans: national treasury; specific funds; public and private banks at regional, national or international levels; local funding agencies. Bonds issuance: individual or collective, on international or domestic financial markets, through public issuing or private placements, with institutional or retail investors. Source: OECD Total or partial outsourcing of investment SNGs may have access to different solutions: Project s bearing by another public entity: o inter-municipal groupings or associations o local public companies. Public-private Partnerships Private equity Alternative innovative financing mechanisms

17 Indirect Direct Investment sources of funding Gross savings Investment grants & susbsidies Borrowing Depends on subnational government capacities to : Generate room for manouver in terms of operating expenses relative to operating revenue (self-financing capacity): make the most of taxes, user charges and income from subnational assets. Having an liquid cash position. Subnational government can apply for grants from central government, other subnational governments and international organisations (e.g. European Union, donors) Loans: national treasury; specific funds; public and private banks at regional, national or international levels; local funding agencies. Bonds issuance: individual or collective, on international or domestic financial markets, through public issuing or private placements, with institutional or retail investors. Source: OECD Total or partial outsourcing of investment SNGs may have access to different solutions: Project s bearing by another public entity: o inter-municipal groupings or associations o local public companies. Public-private Partnerships Private equity Alternative innovative financing mechanisms

18 Thank you Plus d information : - isabelle.chatry@oecd.org