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Business News of Friday, 9 November 2012

Source: B&FT

Municipal Finance Bill under review

The National Bond Market Committee (NBMC) is currently reviewing the draft Local Government Finance Bill, otherwise known as the Municipal Finance Bill, to address various challenges that have stalled its passage into law.

Creating a strong regulatory framework that will prevent Metropolitan, Municipal and District Assemblies (MMDAs) from engaging in multiple borrowing and incurring unsustainable debts -- which will ultimately be passed on to the central government -- is among the important challenges being addressed.

The review also seeks to facilitate the ability of MMDAs to identify and invest in revenue- generating projects using the bonds that they will sell.

“The NBMC is reviewing the bill. There were two issues with it: the first was how to ensure that MMDAs do not go round borrowing and incurring debt which will be passed on to central government.

“The other is how to ensure that MMDAs invest in revenue-generating projects so that the projects can generate revenue to pay back,” Mr. Kofi Yamoah, Managing Director of the Ghana Stock Exchange, told the B&FT in an interview.

The NBMC was set up to among other things identify constraints in the development of a corporate bond market, and study and recommend legal, institutional and process changes needed to accelerate the development of a corporate bond market.

The committee also monitors performance of the government bond market and advises on how improve its effectiveness so that it can be a reliable anchor for a corporate bond market.

The Securities and Exchange Commission (SEC) last week urged Parliament to pass the Local Government Finance Bill to empower MMDAs raise private capital for infrastructure development in their localities, and relieve central government of the burden of using its limited budgetary resources to finance various infrastructure gaps across the country.

When enacted, the bill will facilitate investment in municipal bonds and credits by individuals, companies, and capital market entities such as mutual funds and pension funds. It will also facilitate credit enhancement assistance and help establish credit assessment and rating systems for local governments.

The bill was laid in Parliament in 2008 to complement the Municipal Finance and Management Initiative (MFMI) of the government at the time. It includes among others a proposal for the creation of a Municipal Finance Authority (MFA).

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