Read the following passage carefully:
To accelerate urban climate adaptation, several sub-national municipal governments have issued green bonds backed by explicit central sovereign guarantees. While these guarantees significantly lower borrowing costs by aligning municipal credit risk with sovereign debt ratings, they alter the risk perception of institutional investors. Recent audit evaluations reveal that municipalities benefiting from sovereign-backed green debt experience a notable decline in local tax collection rigor compared to municipalities issuing unbacked bonds. Economists contend that sovereign guarantees create an implicit fiscal safety net, encouraging local administrations to divert municipal revenue streams toward non-essential administrative expenditures rather than maintaining dedicated local debt-servicing reserves. Consequently, while capital inflows for environmental infrastructure increase initially, the underlying fiscal solvency of these local authorities deteriorates. Furthermore, sovereign entities faced with escalating contingent liabilities may ultimately be compelled to absorb municipal debt defaults, thereby expanding national fiscal deficits.
Based on the passage above, which of the following statements can be logically inferred regarding sub-national municipal green bonds?
- Providing sovereign guarantees on municipal green debt can inadvertently diminish local administrative incentives for rigorous domestic tax collection.Answer
- BMunicipal green bonds issued without explicit sovereign guarantees are unable to raise any institutional capital for urban infrastructure.
- CSovereign governments experience an immediate increase in national tax revenues whenever local municipalities issue sovereign-backed green debt.
- DSub-national governments must immediately terminate all environmental infrastructure funding to restore national macroeconomic stability.