23 February 2004

By Richard Mantu

WELL-GOVERNED municipalities will soon be able to issue municipal bonds to borrow money from the market in a bid to further improve on basic service delivery aimed for the poorest of the poor.

The bonds will give impetus to municipalities' objectives of providing basic services such as water and electricity to poor households. However, the bonds won't be linked to government benchmark bonds and have no government guarantee. They will be issued in terms of the Municipal Finance Management Act that will come into effect in July 2004.

Finance Minister Trevor Manuel announced this in Cape Town during his Budget speech for the 2004/05 fiscal years, to outline government spending priorities for this period.

A programme for the phased implementation of the Act will be issued soon, said the minister. He said municipalities' borrowing would be determined by own requirements while demand would be determined by investor perceptions.

Manuel said the Act would take due regard of the uneven capacities of municipalities to implement financial reforms. "The legislation allows for a municipality to borrow and it is expected that these provisions will usher in new players in the bond market," he said. "Some large municipalities will be issuing municipal bonds in the near future. We wish them every success and we note that such borrowing will be undertaken without national or provincial government guarantees."

Manuel announced that, over the next three years, municipalities would receive an additional R3,9-billion, taking total transfers to local government to R47,3-billion. He said that approximately R1,7-billion of the additional allocation of R3,9-billion would go directly into the Municipal Infrastructure Grant (MIG).

The minister said this would enable municipalities to cope with the backlogs in basic municipal infrastructure and to promote the creation of jobs through the Expanded Public Works Programme. Total grants for infrastructure increases to R5-billion in 2004/05, rising further to R5,6-billion and R6,-billion in 2005/06 and 2006/07.
- BuaNews