Despite sophisticated financial markets, the country is slow to
reinvigorate its municipal bond market amid rapid changes in
its political and fiscal structure.
Matthew Closer and Roland White
In marked contrast to other countries of Sub-Saharan Africa,
South Africa has a sophisticated private financial market. Mu-
nicipal borrowing—through bonds and from intermediaries—
has been a feature of local government funding for years,
though before the early 1990s such borrowing was implicitly or
explicitly guaranteed by the state. Aggregate lending volumes
have stagnated and declined in recent years, however, primarily
as a result of the interplay between a deficient policy and regu-
latory framework and poor budget discipline and financial man-
agement practices in local governments.
South Africa has taken measures to address these deficiencies.
However, these measures, combined with ongoing reforms in
the organization of the local government system (such as
changes in boundaries), have led to a lack of stability, creating
an uninviting investment environment for private lenders.