HYOGO - Hyogo Prefecture has been placed under a system requiring central government approval for new borrowing after its debt repayment burden exceeded a nationally defined threshold, raising concerns that worsening finances and higher interest rates could push the prefecture closer to serious fiscal distress.
The prefectural government reported its fiscal 2025 financial results to a Hyogo Prefectural Assembly committee on August 18.
The three-year average of Hyogo's real debt service ratio, which measures debt repayments as a percentage of revenue, reached 19.2%, exceeding the central government's threshold of 18%.
As a result, Hyogo has been designated as an entity requiring approval to issue local government bonds, meaning it must obtain central government permission before taking on new debt.
The prefecture attributed the deterioration partly to higher levels of public investment compared with other prefectures of a similar size, as well as continuing repayments on debt incurred for reconstruction following the Great Hanshin-Awaji Earthquake.
Recent increases in interest rates are expected to add further pressure by increasing future debt-servicing costs.
If the current trend continues, Hyogo could fall into the category of an early fiscal rehabilitation entity in fiscal 2031, a status regarded as one step short of fiscal collapse.
It would be the first prefectural government in Japan to enter that category.
In response, Hyogo plans to reduce investment in public works projects by at least 10% over a 10-year period beginning in fiscal 2027.
Source: YOMIURI
