Municipal Bond Emission at the Cape Verde Stock Exchange

Municipal Bonds are a type of long term loan that allows Municipalities to finance their local projects such as the construction of professional schools, hospitals, social housing, roads, sanitation and other services at a lower cost. Steered by the importance of municipal development, the International Monetary Fund (IMF), US Agency for International Development (USAID) and other institutions, have supported and encouraged the issuance of Municipal bonds having already received positive results in the United States, Uganda, Philippines, Zimbabwe, Indonesia, Russia, South Africa and Poland, amongst other countries.

The advantages are categorical and unanimously accepted, and bonds are proven to be effective mechanisms for the financing of Companies, Governments, International Organizations and Municipalities. The following advantages have been cited:

1. Bond emission brings more visibility to Municipalities and renders better organization with management that is more dynamic, transparent and efficient, that consequently encourage public and private partnerships as well as  project financing destined for large scale investments, for example: the construction of large hospitals, universities, airports, access roads, renewable energy parks, central electric installations  and others.

2. By rule, traditional loans require monthly payments of interest and capital. With bonds, the municipality can defer the loan payment amount until the end of maturity paying only interest throughout the life of the bond, leaving the it more money to function with.

3. The interest rate is lower than traditional loans because there are various investors which makes possible the dispersion of risk amongst the various financers.

4. Bonds are taxed 5% income tax; this means that investors will be willing to accept a lower rate because there are less financial charges comparative to other funding mechanisms that are taxed 20% income tax.

Beyond the above mentioned advantages, Municipalities can avail themselves to State guarantees in accordance with article nº 14 of Law Decree for financing local governments.

At this moment there is a pending municipal bond emission in its last phase of deliberations, of which the Stock Exchange will soon provide information.