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Dar experiments alternative mechanisms for financing its development projects

UNCDF is building its capacity to issue municipal revenue bonds

SATURDAY December 4, 2021

Municipal bonds are debt obligations issued by government entities. When one buys a municipal bond, he is lending money to the issuer in exchange for a set number of interest payments over a predetermined period. PHOTO | DAILY NEWS

By The Tranquility News Reporter, Tanzania

Tanzania’s local government authorities will with effect from next year embark on issuance of sub-national bonds to raise funds for financing their development projects.

A strategic national municipal bonds task force comprising various players already has been formed to oversee and fast-track the bond issuance process.

The task force comprises senior officials from the public sector, including the President’s Office – Ministry of Regional Administration and Local Government, Ministry of Finance and Planning, Treasury Registrar’s Office, Ministry of Water and Zanzibar Ministry of Local Government

Others are from Capital Market Securities Authority, Central Bank of Tanzania, Dar es Salaam Stock Exchange, regional secretariats, local government and sub-national water authorities.

Also involved from the private sector are key capital market actors such as brokers-dealers, banks, and financial advisory firms.

The Head of the UN Capital Development Fund in Tanzania, Mr Peter Malika, briefs media practitioners in a past event. PHOTO | HABARI MSETO

The UN Capital Development Fund (UNCDF) is currently building the capacity of officials from Dodoma, Dar es Salaam, Arusha, Mbeya, Mwanza and Tanga cities to issue the sub-national bonds, particularly municipal revenue and climate-compliant infrastructure bonds.

Also being capacitated by the UNCDF are capital market actors and the strategic national municipal bonds task force.

UNCDF will conduct many capacity building series at different levels and stakeholders,” the Head of the fund in Tanzania, Mr Peter Malika, said during a maiden training session in Arusha recently.

He said the use of municipal revenue bonds and incorporation of climate-resilient elements in water infrastructure would be a game changer in the government financing mix towards development initiatives.

“We recognise the mismatch between national budgets, rapid urbanisation and increased demand for critical services such as water, transport, waste management, health and education putting pressure on the ability of cities, municipalities, and emerging secondary cities to serve the people,” Mr Malika said.

Mr John Mongela, the Arusha regional commissioner, urged financially strong cities, municipalities and water authorities to pursue the municipal revenue bonds approach to finance their income generating development projects.

The Arusha Regional Commissioner, Mr John Mongela, stresses a point during a past even. PHOTO | BONGO NEWS

“The untapped alternative financing mechanism will provide the central government with enough relief to focus the use of its development grants on other essential social services,” he said.

The introduction of the municipal revenue and climate-resilient infrastructure bonds follows President Samia Suluhu Hassan’s recent announcement on the readiness of her administration to use alternative sources of finance for development activities.

It is also pegged in the Financial Sector Development Master Plan 2020/21 – 2029/2030 which considers municipal bond as one of the financing options for national development.

Tanzania’s local authorities face significant challenges in addressing critical urban infrastructure and services due to lack of funding, as their budgets depend on fiscal transfers from the central government by 90 per cent.

The broadened mix of financial sources will facilitate capital access for local authorities and strengthen the financial markets and market intermediaries.

 

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