MUNICIPAL BONDS – A SOURCE OF CAPITAL FOR THE GOVERNMENT

Abstract

This note on municipal bonds is the first in the series of notes that will assess the viability of municipal bonds in Pakistan. The objective of this note is to give readers an introduction to municipal bonds as an alternative source of financing while also emphasising their growing importance in financing mega cities projects. The major teaching objectives of this note are: - Introducing executives to municipal bonds and their various types, which are extensively being used by local government in developed countries to finance mega cities projects. - Helping executives understand the rationale behind exploring municipal bonds as an alternative source of financing while also discussing their advantages when compared to government grants and bank loans. - Giving executives an idea of what are the different concerns for investors – largely households – and the perceived risks attached with municipal bonds that need to be addressed by the local government planning to issue the municipal bonds. This note presents to the executives the framework of issuing municipal bonds to the public and highlights the composition of governmental deal team, their key responsibilities and compares the feasibility of two underwriting methods given different circumstances.