Risk Assessment of Local Government Debt based on KMV Model: A Case Study of Hangzhou, Zhejiang Province

Abstract

The present government debt governance focuses on calculating, preventing, and controlling local government debt risk. The default probability of local government debt in Hangzhou, Zhejiang Province, is calculated using a modified “Kealhofer, McQuown, and Vasicek” (KMV) model. The findings reveal that Hangzhou’s debt risk in the next three years is usually manageable, but that debt risk will progressively emerge in the coming years when the debt payback cycle begins.