Financial transparency and disclosure among regional and local governments (RLGs) worldwide has improved, a credit positive, says Moody's Investors Services in a report published today. The report focuses on China, Italy, Spain, Germany, the United States, and Mexico.
The report, entitled "Regional and Local Governments: Improving Public Sector Transparency: a cross-country comparison (China, Italy, Spain, Germany, US, Mexico)" is now available on www.moodys.com. Moody's subscribers can access this report via the link provided at the end of this press release.
"Over the last several years there has been a marked shift towards greater financial openness and improved disclosure among public sector entities in many countries. We expect RLGs to continue improving their disclosure practices as they seek to diversify their funding sources," says Massimo Visconti, author of the report.
According to Moody's, the improvements include more frequent and timely financial disclosure, and adoption of accrual based accounting. The latter generally provides a more accurate picture of public sector entities' debt and liabilities. The rating agency notes that RLG accounting and disclosure standards still vary widely between countries, and between different tiers of government within the same jurisdiction.
In China, RLGs are moving towards more robust accounting standards to help attract capital market funding and reduce their dependence on opaque borrowing through third parties, says Moody's.
China's new budget law adopted on 1 January 2015 ranks as one of the most important measures to date in China's overhaul of its public finance system. The most fundamental change it introduces is the repeal of the previous ban on local governments borrowing directly, paving the way for them to issue bonds in their own name for the first time.
Changes in Europe are driven in part by RLGs' efforts to demonstrate improved financial resilience in the wake of the sovereign debt crisis.
In Italy, RLGs are in the final phase of a major accounting reform designed to make their finances more transparent and easier to compare. The initiative includes a new modified accrual basis of accounting that takes effect from 2015, and the introduction of full accrual and consolidated accounts in 2017.
In the US, recent changes have introduced higher disclosure standards regarding pensions, while in Mexico, RLGs began adopting new accounting standard in January 2015.
