Guidelines on Local Government Borrowing and Recent Developments in South East Europe
1. Basic Principles of Local Government Borrowing

Implementation of local governments’ investment projects depends on their ability to raise the necessary funds from a combination of own resources and external financing. Debt financing enables municipalities to carry out more infrastructure projects in a shorter time period as compared to the financing from own funds. However, the risks associated to borrowing have to be well understood and documented in terms of their potential impact on local budget in the future. Thus, before borrowing is undertaken, it is recommended that each local government has in place a debt management strategy and a written debt policy. The debt management strategy should ensure that the local government maintains at all times an adequate level of indebtedness which (i) would not impair its financial stability and (ii) would enable it to implement the investment objectives.