Chronicle Editor
Vusumuzi Dube, Online News Editor
THE City of Bulawayo is exploring new avenues of funding its critical infrastructure projects following a joint proposal from Financial Services Exchange (Private) Limited and Nedbank.
The proposal aims to issue tradable municipal bonds intended to serve as a capitalisation instrument to address the city’s pressing infrastructure and development needs.
Municipal bonds have long been recognised as a viable long-term financing solution for public organisations, specifically designed to fund public projects such as schools, roads and other essential infrastructure developments.
Given the deteriorating state of Bulawayo’s infrastructure, the city council faces significant challenges in securing the necessary funding to implement its capital budget effectively.
The ongoing struggle to replace aging infrastructure has been exacerbated by a lack of long-term funding options, prompting the council to consider innovative financial strategies.
According to the latest council report, the local authority had recently received a joint proposal from Financial Services Exchange (Private) Limited and Nedbank to issue tradable municipal bonds as capitalisation instruments for their infrastructure and development opportunities.
“Municipal bonds offered a long-term financing solution to public organisations. They were primarily used to finance public projects such as schools, roads and other infrastructure developments. The city’s infrastructure required replacement and funding had been the main challenge.
“The capital budget implementation was always faced with challenges due to lack of long-term funding. The engagement with the two organisations on their joint proposal would enable council to understand and make an informed decision going forward. It was against this background that authority was being sought to engage the two organisations on their proposal, thereafter a report be submitted to council,” reads the report.
The engagement with the two financial institutions on their joint proposal is seen as a critical step toward understanding the potential benefits and implications of issuing municipal bonds.
“Discussion ensued and it was noted that the matter would require financial commitment from council. It was felt that the committee should receive a more detailed report, which spelt out the associated risks.
“In response, the Town Clerk (Mr Christopher Dube) explained that the report aimed to seek approval to engage Financial Services Exchange and Nedbank regarding their joint proposal for the introduction of tradable municipal bonds. Following this, a detailed report would be submitted for the committee’s consideration,” reads the report.
According to sec.gov, municipal bonds are debt securities issued by states, cities, counties and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways or sewer systems.
“By purchasing municipal bonds, you are in effect lending money to the bond issuer in exchange for a promise of regular interest payments, usually semi-annually and the return of the original investment. A municipal bond’s maturity date may be years in the future. Short-term bonds mature in one to three years, while long-term bonds won’t mature for more than a decade.
“Generally, the interest on municipal bonds is exempt from income tax. The interest may also be exempt from state and local taxes if you reside in the state where the bond is issued. Bond investors typically seek a steady stream of income payments and, compared to stock investors, may be more risk-averse and more focused on preserving, rather than increasing, wealth. Given the tax benefits, the interest rate for municipal bonds is usually lower than on taxable fixed-income securities such as corporate bonds,” reads part of the definition.
This initiative by the local authority reflects a possible trend that can be taken up by municipalities in Zimbabwe to leverage financial instruments that can attract investment and stimulate local economic development.
Online Reporter