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National Bond Market Committee advocates for Municipal Bonds establishment

By Fred Yaw Sarpong
The National Bond Market Committee (NBMC II) is advocating for the introduction of Municipal Bonds in the country, in order for Municipal, Metropolitan and District Assemblies (MMDAs) to access funds from the capital market to meet their developmental needs.
The committee included this in their recommendations to the government, after it was tasked to review the bond issues in the country.
The NBMC II committee met some selected financial journalists in Accra last week and explains that is important that the government allows the MMDAs to raise funds from both internal and external markets for development rather than always depend on the central government for funds.
The Chairman of the committee, Michael N.A. Cobblah found Accra Metropolitan Assembly (AMA) to be rich municipality. ‘Look at all these nice houses we see. Take a look at Airport residential area, Cantonment, East Legon and see how much property rates people are paying. People are paying GHc100 for these kinds of properties,’ he emphasized.
‘In London or any of these civilize countries where you high network of people staying they pay good property rates and they have good collection system. So because they have a good collecting system they can go to the market and borrow at least US$10 billion for any development,’ he stated.
He indicated that with a good collecting system from AMA or Kumasi Metropolitan Assembly (KMA), they can sell all those rates they will be collecting in future today. So AMA for instance does not have to wait for 10 years to undertake a development. They can start a development today if they streamline the way they collect their revenue sources.
What we saying is that the danger is that if those institutions borrow and they fail, it means that people will go back to the government to say pay back our money because they are government related. But if they streamline their activities and their revenue flows are harness in a way that they can re-fence them, it can be use to borrow for development.
‘So instead of these assemblies collecting GHc10 billion in future they can rather collect that amount today. They have to make sure that people pay economic rates and put a proper collection system in place to ensure they have much revenue to allow them borrow,’ said Cobblah.
A member of the committee, Reginald N. France also added that there should be a change in the local government Act, adding that when that is change the committee is stressing that the capacity should be build for local government authorities and the enable environment should be created.
‘There should be a back stock in this kind of system, so that if there is a failure government will pay. So the develop of the municipal bonds will enable the locality have ability to access funds internally or international,’ said France.
‘We are also calling for a pilot to be started by either Accra Metropolitan Assembly (AMA) or Kumasi Metropolitan Assembly (KMA).
The committee, however, called for changes in the Local Government Act. He indicated that there are limitations in the ability to borrow and that limitation is like no assembly can borrow more than 20 million old cedis (GHc2, 000), according to the Act. ‘As you know GHc2, 000 limitations cannot do any development for any of these assemblies,’ he added.
The understanding is that when these limitations are removed or amended, it will allow the municipalities to consider bonds as some of the means to raise more funds for development.
In 2010, the government suspended the issuance of municipal bonds due to the Ministry of Finance and Economic Planning (MOFEP’s) point that the assemblies were not ready.
The Finance Ministry was of the view that it does not want to rush the municipal bonds since it was most likely to jeopardize the work of the central government.

Because the various District Assemblies were not ready earlier, the Finance Ministry withdrew the Municipal Finance Bill from Parliament.
The NBMC II is tasked to recommend policy measures and reforms to address the remaining weakness and deficiencies in the legal and regulatory framework, market infrastructure and other important mechanisms that will help to target the mobilization of domestic resources through the promotion of attractive policies to grow and develop the corporate bond market.
The NBMC II is also expected to identify the constraints to the development of a corporate bond market among others.
It’s also to review and monitor the performance of the government bond market and recommends legal and regulation, issuance and market development and infrastructures and proposes changes to improve its effectiveness as an anchor for the corporate bond market.
Also, the  committee it to identify the constraints to the development of a corporate bond market; and assist the private sector to participate in the bond market by proposing appropriate financial or technical mechanisms.


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