State and local debt and the debt ofquasi-public agencies have grown in importance as a resultof fiscal decentralization, rapid urbanization, and theincreasing role played by private capital. However, withdebt comes the risk of insolvency. This note outlines a setof aligned fiscal incentives that should be in place, aswell as the design issues to be considered in debtrestructuring frameworks. This note also suggests some broadlessons extracted from several country experiences withsubnational debt restructuring, insolvency frameworks, anddebt market development. This note suggest a range ofpossible lessons to consider when designing reforms to alignfiscal incentives and develop a robust subnational debtframework that can be used to effectively manage theinsolvency risks that will inevitably accompany the newdynamism of subnational finance.
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