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SA sees expanded municipal bonds spreading debt burden

Currently about half of infrastructure spending by large cities is funded by national government.

South Africa is working on policy and regulatory reforms to make it easier for municipalities to borrow in capital markets to finance infrastructure projects, the National Treasury said.

About half of infrastructure spending by large cities is funded by national government, with most of the rest coming from revenue raised locally, the Treasury said in the mid-term budget released in Cape Town on Wednesday. Long-term municipal debt grew by only 9.2% in real terms since 1997, while government debt is ballooning as tax revenue lags targets.

Read more about the medium-term budget policy statement here

“Municipalities are very cautious about long-term borrowing,” the Treasury said. “There is ample scope for creditworthy municipalities with strong financial management to increase local capital investment by expanding’’ borrowing in the municipal bond market, it said.

Of South Africa’s 257 municipalities, only four large metros — Johannesburg, Cape Town, Tshwane and Ekurhuleni – have sold bonds, according to Statistics South Africa. Many intermediate and smaller towns with a sound revenue base could also borrow in capital markets, the Treasury said. Policy reforms to clarify the role of development-finance institutions and regulate municipal charges are under way to broaden access to markets, it said.

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Most smaller municipalities do not need to issue muni-bonds….they have so much money, the bulk of it must still be “tied up” at their friendly VBS Bank(?)

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