Districts should consider municipal bonds issuances as an alternative avenue to raise affordable finance to fund development projects that will help the country become self-sustaining.

However,  Kampeta Sayinzoga, the Secretary to Treasury at the Ministry of Finance, has said  districts will not be allowed to issue municipal bonds unless they have assessed and rated by reputable firms. To qualify for bonds issuance, the local authorities must also first ‘clean’ their books of accounts for at least three years, Sayinzoga added.

Sayinzoga was speaking during a sensitisation workshop on municipal debt financing in Kigali last week. The seminar was attended by 30 district mayors.

The government, through the Capital Markets Authority (CMA) and the Ministry of Local Government, has been planning municipal bonds issuances for about three years now and it was only until April this year that their issuance guidelines and regulations were published by the Office of the Prime Minister.

Speaking at the workshop, Joshua Gallo, the World Bank senior municipal finance specialist, explained that the main objective of rating is to help understand the risks attributed to doing business with specific organisations.

"The capital market enables governments or businesses to raise development finance instead of taking bank loans. Most importantly, it contributes to the development of the financial market through provision of an independent risk assessment tool to help determine the pricing of the financial instruments,” Gallo said. 

Vivien Shobo, the managing director of Augusto, a Nigerian-based credit rating firm, said it will be difficult for Rwanda to depend on taxes only for its funding needs, noting that it is essential for local governments to start issuing bonds.

Shobo added that municipal bonds usually have low interest rate compared to bank loans, making bonds a suitable tool to help local authorities to raise long-term funding.

"They are also typically tenured for about five years, which eases pressure on local governments’ budgets,” he said.

 "They should ensure that their rating is positive to attract investors,” Shobo said.

Government advised  

According to Shobo, there is need to sensitise local governments and the public, which will lay a concrete foundation that will create the required awareness among local authorities and the public to support municipal bond issuance.

"The success of municipal bonds in Rwanda will depend on having in place well-structured legal authority that will help secure necessary approvals for the projects,” Shono said.

Meanwhile, Vincent Munyeshyaka, the Ministry of Local Government permanent secretary, has urged districts to start planning for bond issuance, noting that they cannot wait for all districts to first get ready.

"We will support those that are ready to issue bonds because we believe this will enable districts to become self-reliant. Banks cannot finance everything…we need to have a diversified financing system,” Munyeshyaka noted.

He pointed out that bonds have a multiplier effect in terms of aiding infrastructure financing and development of the capital market, thus driving employment which will translate to higher tax revenue for districts.

Robert Mathu, the Capital Markets Authority boss, believes that for Rwanda to attain its development goals, local governments must be able to fund themselves.

Mathu added that municipal bonds are one of the instruments that will help Rwanda become self-reliant in terms of resource mobilisation. The Capital Market Authority has already licensed experts to help districts on municipal bond issuances.

Districts not yet ready

The City of Kigali vice-mayor in-charge of  finance and economic development, Alphose  Nizeyimana, said the city authority will have to first raise their revenue status from current Rwf18 billion to over Rwf25 billion before they can issue any bonds.

Nizeyimana argued that it is better to first strengthen the city’s books of accounts before ‘rushing’ to issue municipal bonds.

"We hope the city’s total revenue collections will reach Rwf25 billion in five years…we want to first maximise our revenues and strengthen financial systems because issuing a bond is not that easy. I think we will be ready to do that in at least three years,” Nizeyimana told Business Times in an interview.

His views are shared by Claudine Uwineza, vice-mayor Karongi District and Jean Claude Munara, the Gasabo District vice-mayor in charge of economic affairs. Both confirmed to this publication that they are not ready to issue municipal bonds.

 In fact, out of the 30 vice-mayors Business Times talked to during last week’s seminar on municipal debt financing held in Kigali, only a few had a hint about municipal bonds.