Details

Technical Note

The Case of Municipal Bonds in Pakistan

Bushra Naqvi

INDUSTRY :

AREA : Finance

ORGANIZATION : Pakistan

LENGTH : 23

LUMS No : 02-604-2014-2

PUBLICATION YEAR : 2014

KEYWORDS:

Municipal Bonds,Revenue Source,Government,Capital,Financing,Mega Cities Projects

DESCRIPTION:

This note is second in the sequence of Municipal Bond Financing series, specifically designed and written to give readers a brief idea about municipal bond financing in Pakistan and also its application and performance in comparison to its neighboring countries. This note, at the beginning, discusses the context and circumstantial realities that justify the need of municipal bond financing in Pakistan, given the continuously increasing requirements of urban infrastructure project financing coupled with the significant changes that happened to the overall governance structure, including different tiers of governments, in Pakistan. It also gives the reader a quick view of the bond market in general and discusses its different components including but not limited to municipal bonds. Finally, this note discusses in detail the major frictions creating hurdles for Pakistan in its way to a developed municipal bond market, conjugated with probable solutions and policy recommendations.

LEARNING OBJECTIVES:

1) To highlight the importance of municipal bonds in the financing of urban development projects. 2) To understand the existing structure of bond market ( Govt. and corporate) in Pakistan. 3) To highlight the various concerns that affect investor's risk perception towards any bond issue and the potential solutions to make this perception as positive as possible. 4) To highlight the major reasons behind the underdeveloped bond market in Pakistan and how it could affect municipal bond issues. 5) To understand the relationship between low credit rating and yield, since an entity issuing bonds has to pay to investors. To know and understand the dimensions in which different tiers of governments in Pakistan should improve their credit rating so as to minimise their cost of borrowing. 6) To udnerstand the legal framework and regulatory structure governing not only municipal bond issue but also the local and municipal governments and know the frictions and inconsistencies are making it inefficient.

SUBJECTS COVERED:

Finance