ModernGhanalogo

FEATURED: 'ofori-Atta's Performance Shockingly Abysmal; He Fooled Hypocritical I...

body-container-line-1
01.10.2020 Feature Article

Revenue Bonds

Revenue Bonds
Listen to article

The ability of the government to borrow funds to embark on infrastructural financing, and other development projects is limited by the deficit targets set for itself. The revenues from the Assemblies can be used to raise funds from the local capital market to finance infrastructural financing of these development agencies. Revenue bond, a category of Municipal bond can be developed in Ghana for such purposes.

The successful development of this category of bond in the country will ensure constant availability of funds for development to the Assemblies. The Assemblies will be able to raise enough funds to finance markets, lorry parks, stadia, highways or toll bridges. This will relieve the burden on government to constantly borrow for such purposes. Nothing will be added to the mounting public debt of the country.

Revenue bonds are municipal bonds that finance income-producing projects and are secured by a specified revenue source such as market tolls, toll bridge or revenue from the use of a stadium. The government may need to be a guarantor for the Assemblies in raising funds on the capital market. A classic example is the Kejetia Market or the Kumasi Central market: the Kumasi Metropolitan Assembly and Asantehene own this project. The government, through Ministry of Finance, can guarantee for the Assemblies if the issuance of such bonds are made possible in Ghana.

Instead of the Assemblies relying on the government for capital project financing, the revenues of the Assemblies should be used to secure the funding of their projects. Many Assemblies have the capacity to raise enough capital to fund their capital projects. The repayment of any type of debts, available to the Assemblies to finance their projects, can be paid from their Internally-Generated Funds (IGF), used as a secured revenue source.

Currently, there are legal barriers in an attempt to develop or create this type of market. There is no legal backing for the Assemblies to borrow in order to finance their own projects. There is no Act in the Local Government Act which allows the MMDAs to access funds from the capital market for development purposes. It is therefore an opportune time for the State to take appropriate steps to enact and implement a Law that permits the development agencies, the Assemblies, to borrow funds for their capital expenditures.

In the manifesto of the NDC as captured on page 113, (item n) Pdf version, there is an item on enacting and implementing the Local Government Act (District Assemblies’ Borrowing Act) which will help the MMDAs to source funding from the Capital Market and the private sector for development and municipal service delivery. This policy objective, if implemented well, will offer funding alternatives to the state and the Assemblies. The solution to the inadequate funding at the Assemblies can be identified in the Assemblies having the abilities to finance their capital expenditures.

The Parliament of Ghana and other stakeholders should begin assessing the viability of this proposal. The evaluation of the receipt of the revenues by these Assemblies should be the focus before the final implementation of this policy. Assemblies that can and have the abilities to raise enough internally-generated funds need to be given the opportunity to issue this type of bond.

Enough funding for the projects of the Assemblies can be raised from local investors if there is trust and confidence that the borrowed amounts will be returned. Consequently, there is the need for education, through the radio and television, on investments that are risky and those that are not. Financial literacy and education of the public are important elements in shaping the savings and investment culture of the populace.

The several thousands of Ghana Cedis that are lost to Ponzi scheme activities can be lent out to the Assemblies as there is the guarantee that repayment will be made. The investing public will have to embrace this new investment option as being more profitable than holding their monies in Ponzi schemes. Investors need to choose to invest in products and services that are less risky. Revenue bonds have such characteristics. There is the possibility that government business will not collapse; the state will continue to exist and so a return of the borrowed funds is guaranteed.

Local Government agencies, the Assemblies, should take the necessary steps to push for the enactment and implementation of this Act, the Assemblies Borrowing Act. The Assemblies receive funding in the form of Assemblies Common Fund to embark on projects. Yet there is a desperate need for infrastructure investment throughout the country. Revenue bonds can help address the financing gap the Assemblies experience.

The use of revenue bonds by the Assemblies will create the fiscal space for them to raise funds for infrastructure financing. There should be political will, on the part of the state, to allow the Assemblies to expand their revenue generation capacities through bond issuance. The technical proficiency and financial market readiness should not be the limiting factors for this initiative.

Take, for instance, in 2004 South Africa passed a law, the Municipal Finance Management Act, which sets out clearly the financial activities cities can and cannot undertake in their country. The enactment of the Assemblies Borrowing Act may take a similar model, by prohibiting the Assemblies from borrowing for recurrent expenditures and, instead borrow for long-term projects.

The state should create enabling regulatory and legal environments for the sub-national level agencies to raise funds for financing their infrastructure. It will lessen the burden on government to borrow.

Emmanuel Kwabena Wucharey

Economics Tutor, A growing Activist and Religion Enthusiast.

Emmanuel Kwabena Wucharey
Emmanuel Kwabena Wucharey, © 2020

The author has 73 publications published on Modern Ghana.Column: EmmanuelKwabenaWucharey

Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not necessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article."

Powered By Modern Ghana
body-container-line