Municipal bonds as alternatives to PPPs: Facilitating direct municipal access to private capital

The advantages of using municipal bonds to finance urban infrastructure are becoming increasingly evident to policy makers in emerging economies, many of whom are making efforts to accelerate the development of municipal bond markets in their countries. Municipal bonds are sometimes viewed as a less expensive way of financing infrastructure than by public-private partnerships (PPPs), or methods that maintain greater public control over projects and service provision. The objective of this article is to place current efforts by the South African government to promote municipal bond market development in an international context. This is done by briefly reviewing the advantages local governments experience by issuing municipal bonds to finance infrastructure; discussing some experiences of other countries in trying to accelerate the development of municipal bond markets; and reviewing the need and prospects for an active municipal debt market in South Africa. The article also examines the extent to which municipal bonds should be thought of as alternatives to PPPs in an emerging economy context.