Tanzania: Report on municipal bonds awaits approval

THE Bank of Tanzania has said the final report of introducing municipal bonds is awaiting the approval of the Ministry of Finance and Economic Affairs.

The report that carries the regulatory framework and draft regulations for the corporate and municipal bonds market was submitted to the Inter Institutional Committee late April and later on passed on to the ministry for approval process.

The introduction of municipal bonds will enable local governments to secure long-term loans for capital intensive projects, such as roads, hospitals and building schools.

With the bonds, the municipalities will have the capacity to raise relative cheap funds to undertake various projects which are important for social economic development in short period.

However, the recent concern was whether the municipalities are loanable given the fact that they are mostly receiving qualifying reports by the Controller and Auditor General (CAG) each year.

The Dar es Salaam Municipal Director, Bakari Kingobi, was recently quoted by the ‘Daily News’ as saying that the municipalities qualify for loans and are loanable.

“Although we have not received official notification from the Bank of Tanzania (BoT) over the move, but it is an important step that will help the city to raise funds for the implementation of its own projects,” Mr Kingobi said.

The director gave an example of the Machinga Complex which was financed by the National Social Security Fund (NSSF) and shown positive results. The bonds, according to experts, will help raise resources for development of schools, airports, hospitals and other facilities.

At present all local authorities depend heavily on subventions from the central government and little tax to raise revenues for both recurrent and development expenditure.

Though stock brokers said municipalities are loanable the million dollar question is who will subscribe the bonds given poor money discipline demonstrated by a number of councils.

“We welcome the news. But marketing of the bond may prove difficulties as municipalities’ books are almost always in bad shapes” a broker told the ‘Daily News’.

Investors would not only want to see the value of their investment but also what the bond has done to change the faces of their municipality.

Brokers worry that the bond might work against its objective ending into increasing the residents’ cost of living by increasing city levies as at the end of the day if the municipality defaults, the taxpayers have to pay.

Orbit Securities Head of Operations and Dealing, Mr Juventus Simon said the investors are looking at the municipal structures, income and assets to justify their investment.

“Municipalities are loanable. What we want to know is who will guarantee the bonds. If it is the central bank or government I see no reason for not selling them,” Mr Simon said recently.

Nevertheless, the proposed project might bring about brighter future to municipalities, after a policy framework, legislation and rules are put in place.