Constraints to the Development of A Fully-Fledged Municipal Bond Market in Ghana

Financial markets have become vital tools for sustaining the economies of developing countries to this, many developing countries have embarked on a number of financial sector developments, the government of Ghana as part of the structural adjustment programme launched the Financial Sector Adjustment Programme (FINSAP) to address the deterioration problems in the financial sector. But Ghana still lacks a well-established banking sector and local commercial banks usually find it difficult to provide long-term loans for infrastructure projects. Infrastructure projects often require funding that would exceed the amount that a commercial bank can lend to a single customer under banking regulations. They are not well positioned to finance infrastructure that is intended to generate revenues over 20 to 30 years.Therefore in order to meet the country’s infrastructure financing needs, there is the need to fall on a substantial larger financial option to finance local infrastructure and projects. Ghana’s Local infrastructure projects typically involve a large investment of funds over several years and the expectation of the Priority Action Plan by African Development Bank has necessitated the need of issuing municipal bond to finance it infrastructure projects It was in this light that this paper focused on the constraints and challenges to the development and the implementation of a domestic bond market, and the applicability of such experiences to Ghana. The study specifically analyzed the challenges hindering the development and implementation of municipal bond market in Ghana.The study concludes that Current sources of finance for government of Ghana can’t meet the 10-30 years developmental needs of Ghana so there is the need for municipal bond market to issue municipal bonds. But Government of Ghana hasn’t made much concerted effort by putting a legal or operational framework in place which would enable metropolitan, municipal and district assemblies to issue bonds to finance their infrastructure projects.