Hyogo Faces Belt-Tightening After Fiscal Downgrade

The prefecture of Hyogo has been facing financial difficulties after being downgraded, requiring permission from the central government to issue bonds. Governor Motohiko Saito stated that this change would not immediately halt public projects, but emphasized that years of high public investment, funding shortfalls, and improper land-acquisition bond practices under former Governor Toshizo Ido have contributed to the financial deterioration.

Hyogo became a bond-issuance permit entity when its real debt service ratio exceeded the 18% threshold. Currently, the three-year average is about 19.2%. While projects won't immediately stop, the prefecture must now obtain formal permission for procedures that previously involved consultation with the Internal Affairs and Communications Ministry.

Despite the deterioration, Hyogo recorded a real-account surplus of about 20 billion yen for fiscal 2025, largely due to strong corporate performance and robust prefectural tax revenue. However, the governor attributed the worsening debt ratio to factors such as public investment averaging 1.2 times the level of comparable prefectures, a large funding shortfall in the debt management fund, and the use of local government bonds.

Saito outlined a debt-service burden optimization plan, aiming to keep the real debt service ratio below 25% and ultimately below 18%. The plan involves reducing public investment by at least 10%. While ongoing projects cannot be simply stopped, new projects will be examined individually based on their progress. Hyogo's past investment levels were unusually high, accounting for about 22.9% of the fiscal scale from fiscal 2008 to fiscal 2022, compared to around 19% among similar prefectures.

The prefecture plans to establish a review panel to examine the use of bonds issued during former Governor Ido's administration, which may have violated the Local Public Finance Act. The panel will determine whom to question and how to prevent a recurrence. The prefecture aims to balance fiscal reform with priorities such as maintaining public safety infrastructure and supporting younger residents through affordable education measures.