The growing debt of local government units as a threat to local development

Abstract

Local development is a long-term process of changes taking place in the economy. It is necessary to make expenses, especially on investments, for these changes to take place. At the local level the financial costs of these changes need to be borne chiefly by entities of the local government sector. Poland’s accession to the European Union and the possibility for local government units to use the EU funds, especially between 2007 and 2013, caused their development. It resulted in greater residential and investment attractiveness of many rural communes, but their debt increased dynamically. On the one hand, by repayable financing local government units can function despite the inadequacy between their income and the costs of tasks. They can also maintain a high level of capital expenditure despite their low investment potential. On the other hand, local government units face the problem of a safe indebtedness level and appropriate debt management. Excessive indebtedness of local government units is a threat not only to their stable functioning and local development but also to financial stability of the entire public finance sector. The aim of this article is to analyse the indebtedness of local government units in Poland between 2007 and 2014 and to determine the perspectives of local development of these entities in view of their growing debt and in the context of legal limitations concerning the possibilities of local government units to incur new debts, which were introduced in 2014. The study was based on the database published by the Ministry of Finance and the Central Statistical Office.