Enhancing Municipal Credit In Developing Countries

Rapid urbanization in developing countries has escalated the magnitude of infrastructure investment requirements. Simultaneously decentralization initiatives have transferred greater responsibility for investment choices and investment financing from central government to local and state governments.Conversely, tight fiscal policies have constrained budgetary,transfers from central to local governments. Competing claims for scarce budgetary resources have resulted in large funding gaps for infrastructure investments. Private capital will be required if local services are to be brought to minimum standards that support growing urban demand.Two instruments available to replace government subsidies are municipal bonds and market-rate lending in the financing of infrastructure and industrial projects. The target would not only give municipalities' access to credit, but also to do so in an approach that would enhance the efficiency of local investment along with reinforcing financial sector reforms in the rest of the economy.