OREANDA-NEWS. December 22, 2015. Fitch Ratings says in a newly-published special report that robust management practices and policies can add stability to weak local and regional government (LRG) credits, maximising their credit rating potential. Conversely, weak financial management can negatively affect even the strongest economies and local government structures. In extreme cases, poor management can cause rating downgrades and, on rare occasions, missed debt service payments.

Recognition of management practices, rather than merely managers, helps provide an objective means to assess management impact on the credit analysis of LRGs.

Fitch considers financial management as key in the effective operations of a subnational. In some countries, LRGs are run as "corporations" and have the same level of control and reporting as a company. But in others they are administrative units with limited sophistication.

Management can be assessed as being 'pro-active', whereby they are fully aware of the risks that they are undertaking or could face, have clear reporting lines and internal controls in place and can adjust to changes promptly. 'neutral' assessment would reflect some shortcomings, for example accounting policies may be limited or debt management less sophisticated while 'passive' would underline limited debt management culture or investment policies, rudimentary accounting policies and deficient reporting lines.
Management policies can cover many areas including budget planning, debt management, control and oversight as well as transparency and accounting. All these aspects are discussed in the report.

The special report, entitled "Assessment of Financial Management in Local and Regional Governments", is available at www.fitchratings.com or by clicking on the link above.