Development of Local Government Debt Financing Markets: Application of a Market‐Based Framework

Abstract

Needed is clear guidance on how to develop market‐based debt financing systems in transitional and developing countries. We propose an analytical framework useful for identifying constraints to financial development and providing recommendations to overcome constraints to develop municipal financing capacity. The proposed framework is applied to five country case studies: Indonesia, Mexico, Philippines, Poland, and South Africa. The thesis of this paper is that municipal credit market development is related to improvements in the legal/regulatory framework governing local borrowing, the capacity of financial institutions to assess risk, and borrower capacity to support and manage debt.