Regulatory framework for municipal bonds out soon

Mr Kitua
The regulatory framework for the initiation of the municipal bonds to enable local government authorities raise funds for development projects at relatively cheap prices is expected to come into effect in a four-month time.

Dar es Salaam Stock Exchange (DSE) Chief Executive Officer Gabriel Kitua, said in the city on Tuesday that Kigamboni project and four city councils—Dar es Salaam, Arusha, Mbeya and Mwanza—would qualify for the bond facility, thanks to their financial muscles.

Investors who buy municipal bonds are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually and the return of the original investment.

The principal  Mr Kitua, said the bond issuance will increase local governments’ transparency in funding infrastructure development projects and social welfare programmes as well as avail long-term loans for capital intensive projects—roads, hospitals and schools.

The municipal councils will be obliged to first repay the loans in their revenue collections, to minimise the default risk, Mr Kitua said. 

Presenting the budget estimates in Dodoma last week, the Minister for Lands, Housing and Human Settlement Development, Prof Anna Tibaijuka said the government will start using municipal bonds to raise funds for the Kigamboni new city project which is estimated to cost 11.6trn/- in three phases. 

"We will be using modern techniques specifically municipal bonds to raise over 605bn/- outside the budget to implement the first phase of the long awaited project within a time frame," Prof Tibaijuka said. 

She said over 60bn/- has been set aside for this financial year to implement the first phase of the unit project.

The new city master plan seeks to provide sufficient infrastructure such as residential, commercial, trade and business, industrial, educational and tourism facilities.

The government through the assistance of the World Bank (WB) has identified a consultant in the two-phase municipal bonds study to assist in the preparation of the legal and institutional framework for issuance of the debt security.

 The first phase of the project strived to establish the feasibility and required policy changes for a thriving municipal bonds market in Tanzania.

The second phase pursued to develop the legal and operational framework for the municipal bonds markets in the country. 

In March 2009 the consultant was recruited to perform the first part of the municipal bonds study the main objective of the study being to review the current and recommend a future appropriate legal, institutional and policy framework to establish viable municipal bond markets.
Source: The Daily News,, reported by Sebastian Mrindoko
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