Municipal Bonds for Financing Development of infrastructure: A way forward for KCC and Local Governments in Uganda

The world over municipalities and cities often rely on capital markets for their long term financing needs. It is envisaged that such debt issues accelerate the development of cities. The rationale is that since the projects are supposed to benefit the public over time, the issuance of debt to spread the payments between generations is optimal. Municipal bonds are still unexplored as a mechanism of financing capital projects of municipalities in Uganda. This study assesses the legality, the advantages and challenges as well as likely projects to initiate the Municipal bond market in Uganda. It is legally possible for local governments to issue bonds; they can borrow up to 25 percent of their revenue. However, the conditionality in the law that requires them to maintain a balanced budget may be a limiting factor. It is important to note that a yield curve exits for government bonds that can be used as a benchmark for pricing Municipal bond. It is our view that the size of the bond market is already encouraging enough to be confident that the market may receive such issues favourably