The bonds will be anchored on revenues from the assemblies to enable consistent repayment and financing of the debt, he said.
“There is work in progress and we will be coming out with quality proposals from Cabinet. The work will be ready in due course. We are working in collaboration with the Ministry of Local Government,” he said.
Mr. Terkper explained that the reason for not rushing out to sell municipal bonds is to make sure that proceeds will be directed toward productive projects. He said Ghana seeks to learn from countries such as the USA where some states, including California, have run into problems regarding the repayment of issued municipal debt.
The National Bond Market Committee (NBMC) is currently reviewing the draft Local Government Finance Bill, otherwise known as the Municipal Finance Bill, to address various challenges that have stalled its passage into law.
Creating a strong regulatory framework that will prevent Metropolitan, Municipal and District Assemblies (MMDAs) from engaging in multiple borrowing and incurring unsustainable debts -- which would ultimately be passed on to the central government -- is among the important challenges being addressed.
The review also seeks to facilitate the ability of MMDAs to identify and invest in revenue- generating projects using the bonds they will sell.
The bill, when passed into law, will facilitate investment in municipal bonds and credits by individuals, companies, and capital market entities such as mutual funds and pension funds. It will also facilitate credit enhancement assistance and help establish credit assessment and rating systems for local governments.
The increasing demand on the central government's scarce resources has necessitated the need for MMDAs to consider alternate sources of funds for infrastructure projects.
The bill, which also includes a proposed Municipal Finance Authority (MFA), was laid in Parliament in 2008 to complement the Municipal Finance and Management Initiative (MFMI) of Government at the time.
Conservative estimates by Government indicate that the country’s huge infrastructure deficit requires sustained spending of at least US$1.5billion per annum over the next 10 years to address the shortfall.
The deficit covers all the main infrastructure areas -- such as roads, energy, water, aviation, housing, and ICT. In the housing sector, for instance, Government estimates that the country needs to build about a million more units to bridge the demand-supply gap.
In advanced countries and some developing ones, such as China and South Africa, local and municipal governments are backed by law to issue bonds -- proceeds from which are utilised for general capital expenditure including electricity network projects, roads and upgrading of existing roads, and the provision of housing.
There are currently six Metropolitan, 40 Municipality and 124 District Assemblies within the 10 regions of the country. If they are authorised to raise private funds for infrastructure projects, it would entice to their areas investors who critically consider the availability of certain amenities before deciding where to locate their businesses.
It would also take pressure off the capital city and other major regional capitals, where companies compete for space due to the relatively good infrastructure available.
Source: Business & Financial Times
