Through the implementation of full-caliber budget management, the New Budget Law reformed the local government debt management system, aiming to curb the potential threats of local implicit debt expansion to financial stability and economic growth. Leveraging the variation in the implementation timing of this policy shock across prefecture-level cities, this study employs a staggered difference-in-differences approach to examine the impact of local government debt governance on fiscal expenditure efficiency.The results indicate that the reform significantly improves fiscal expenditure efficiency. This finding remains robust after conducting parallel trend analysis, considering modified heterogeneity treatment effects, and controlling for the impact of other contemporaneous policies. Mechanism tests indicate that the reform effectively curbs the growth rate of local implicit debt and strengthens auditing and supervision of fiscal expenditure projects, though it does not affect the structure of fiscal expenditures. Further analysis shows that the policy effect is more pronounced in regionswith lower ex-ante fiscal expenditure efficiency, greater reform intensity, and more intense inter-governmental competition. In addition, the reform enhances residents’ trust and satisfaction with local governments and promotes real economic growth by alleviating corporate financial constraints. Taken together, this papershows that local government debt governance helps reduce fiscal risks while improving expenditure efficiency, thereby achieving the dual objectives of “low risk” in local public finance and “high efficiency” in fund utilization.