• Certain revision of the index for measuring the ratio of debt service expenses to the standard scale of ordinary financial resources from the viewpoint of increased severity and transparency → introduction of the real debt service ratio

- In the case of organizations with a real debt service ratio of 18% or higher, approval is given on the premise that they compile a debt service burden normalization plan.

- In the case of organizations with a real debt service ratio of 25% or higher, limits are placed on local bonds relating to unsubsidized projects, such as regional vitalization projects.

| Debt-limit organization by approval system (limit on issuance of bonds for unsubsidized projects, etc.) | Debt-limit organization by new approval system (limit on issuance of bonds for unsubsidized projects, etc.) | Ordinary approval organization (In the case of municipalities, approval by ordinary criteria is given on the premise of compilation of a debt service burden normalization plan.) | Ordinary approval organization (Approval by ordinary criteria given on the premise of compilation of a debt service burden normalization plan.) | Consultation organization (Agreement by ordinary criteria) (Issuance possible even without agreement)
20 % | | | | 25 % | 18 %
14 % | | | | |
| Ordinary approval organization B | | | |
| Ordinary approval organization A | | | |

Debt service payment ratio

Real debt service ratio

## • Real debt service ratio

• The real debt service ratio is calculated as follows. (Article 5-4-1-2 of the Local Finance Law)

$$ (\mathbf{A}+\mathbf{B})-(\mathbf{C}+\mathbf{D}) $$

$$ \boldsymbol{E}-\boldsymbol{D} $$

A: Principal and interest repayments on local bonds (excluding advanced redemption, etc.)

B: Equivalent of principal and interest repayments on local bonds

C: Specific financial resources allotted to principal and interest repayment, etc.

D: The amount included in the standard financial requirement used to calculate the ordinary allocation tax sum as the expense necessary for principal and interest repayments for local bonds and the amount included in the standard financial requirement used to calculate the ordinary allocation tax sum necessary for quasi principal and interest repayments.

E: Standard financial scale (standard tax revenue amount + ordinary allocation tax amount + issuable extraordinary financial countermeasures bond amount)

## • Idea of the real debt service ratio

• In order to measure the level of principal and interest repayments, from the viewpoint of ensuring market confidence and fairness, transparency, clarity, and so on, a new indicator with certain revisions is used for the current debt service payment ratio.

## 【Revision points】

• Unification of reflective rules in the sinking-fund reserve ratio for local bonds with lump-sum repayment upon maturity

• Reflection in the sinking-fund reserve shortage ratio for local bonds with lump-sum repayment upon maturity

• Introduction in principle of debt service similar expenses, such as subsidies, for the debt service expenses of PFI and partial administrative associations

• Inclusion of withdrawals from the general account for principal and interest repayments of public enterprises