The decision of the Finance Ministry to expand the local-debt refinancing plan is a signal that as the downward pressure on economy increases, the local government's solvency risk is increasing continuously.

Anbound’s research team is of the view that that against the backdrop of increased downward pressure on the economy and the reduced fiscal revenues, the debt repayment pressure in the short term will bring multiple impacts to the local government. The direct impacts include the risk of defaulting and the indirect impacts include the restriction on local developments.

Currently, the local governments do not have the ability to handle the mounting debts.

This could be the important reason behind the Finance Ministry's decision to expand the municipal debt-swap quotas.