Central and Local Government Relations in Asia: Achieving Fiscal Sustainability

Abstract

Sustainable and inclusive growth in emerging Asian economies requires continued high levels of public sector investment in areas such as infrastructure, education, health, and social services. These responsibilities, especially with regard to infrastructure investment, need to be devolved increasingly to the regional government level. However, growth of sources of revenue and financing for local governments has not necessarily kept pace, forcing them, in some cases, to rely on unorthodox funding measures such as shadow banking, or else cutting spending below needed levels. Even if adequate funding is available, there need to be safeguards to ensure that debt levels are sustainable.