Promoting municipal bonds in developing countries - a realistic donor strategy towards sustainable development?

In light of increasing urbanisation and an ambitious new 2030 Agenda for Sustainable Development, subnational entities (cities, towns, provinces) in developing countries need to find ways to unlock private funds in order to finance large-scale capital investments. This article reviews whether issuing bonds at the local level is an objective worth pursuing for sub national entities in developing countries. The author argues that even in the most advanced emerging market economies, raising finance through such mechanisms remains rare and has proven to be a complex effort. The international community may therefore re-evaluate its agenda to promote such instruments in even more challenging settings, such as in Least Developed Countries in Africa and or South Asia. Developing local borrowing practices takes time and donors could adjust their efforts towards helping local authorities access subsidised lending and performance-based grants first, before moving on to more market-based terms. In the end, objectives must be ambitious and realistic to ensure long-term and sustained engagement from all stakeholders.