The Role of the Primary Balance in Local Government Risk Management – a European Perspective

Daniel Budzeń, Marcin Wiśniewski

Abstract


Theoretical background: One of the main aspects of assessing the financial health of local government units is, among other things, ensuring liquidity and analysing the risks associated with the burden of repayment and debt service costs on the budget. It is also important to comply with the fiscal rules laid down in the legal and financial system. The results of the study of the primary balance at the local level in Poland prompted the authors of this research to undertake a more comprehensive study of the primary balance. For this reason, the study will focus on units belonging to the local government sector in the European Union countries.

Purpose of the article: The purpose of this study is to attempt to use a measure such as the primary balance to assess the financial health of local government entities and to highlight its importance in the risk management of the units under study.

Research methods: The authors of this study propose to include in the assessment an additional financial category, i.e., the difference between the entity’s total budget revenue and expenditure excluding debt service costs. Compared with the budget balance, this measure makes it possible to examine the extent to which the entity’s budget is burdened by debt servicing costs. The study was carried out for the period 2005–2022, using International Monetary Fund data for the local government sector compared with the general government sector as a whole.

Main findings: The results obtained make it possible to compare the burden of debt service costs on local government units in different European countries, also against the background of the entire public finance sector. The results justify the need to use the primary balance as an important indicator for assessing the financial situation of local government units.


Keywords


local finances; financial risk; stability of local finances; primary balance

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DOI: http://dx.doi.org/10.17951/h.2026.60.2.7-25
Date of publication: 2026-08-12 23:46:06
Date of submission: 2024-10-05 21:58:15


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