31 July 2012

Tanzania: Take Municipals Bonds More Seriously


THE idea of introducing municipal bonds should be taken seriously to help alleviate poverty and ultimately spur economic growth.

The idea floated by the Ministry of Finance and Economic Affairs and monitored by the Bank of Tanzania (BoT) aims to help local governments secure funds to implement various socio-economic projects.

It also envisages increasing transparency in local governments because the applicants will be required to put their books of accounts in good order first before they request for funding. Further, it requires the municipal councils to pay first for the bonds through their revenue collections to minimize the risk of defaulting.

Practically, the idea has started to show positive signs as the Ministry of Lands, Housing and Human Settlement Development last week said that it plans to raise funds for the ambitious Kigamboni new city project estimated to cost over 11.6tri/-.

Dar es Salaam, Mbeya and Mwanza have also shown willingness to adopt the idea with more regions expected to take up the offer. It's a fact that public trust on the local governments spending is waning following reports of massive theft of funds earmarked for social projects.

This negative image has had serious consequences on the socio-economic growth especially in rural areas as the commercial banks are shying away to bankroll them due to the high risks involved. The Controller and Auditor General (CAG) reports show that audit findings have largely been ignored by local government authorities leading to increased unanswered audit queries.

For example, the amount involved rose from 9bn/- in 2005/06 to 122bn/- in 2009/10. The report further indicates that the number of councils that failed to provide adequate answers to audit queries almost doubled, from 65 in 2005/06 to 129 in 2009/10.

This is shocking, taking into account that local governments are main pillars in ensuring development at grassroots level is guaranteed. Undoubtedly, budgetary constraints have held back the central government from financing community-based projects.

So, the municipal bonds could be the best solution in helping local governments to undertake projects at a more notable pace. However, this should go in tandem with transparency on spending. Such efforts to bail out the local governments should not end there. There should be more viable ideas from all stakeholders including the private sector.

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