Broadening Local Government Financing in Nigeria: The Capital Market Option

Abstract:     
[enter Abstract Body]The need for sound local government finance (LGF) is gaining greater recognition in Africa and Asia, largely due to the reasons of their pivotal roles in the grass root economic development. In Nigeria for instance, there has been the call for the diversification of the local government financing, for an effective service delivery and distribution of “dividends of democracy” to the entire citizenry. This paper therefore takes a cursory look at the local government financing in Nigeria, presenting the capital market source of funding as a viable option for broadening local government finances in Nigeria. This capital market option if pursued has the following merits: (a) it will instill fiscal discipline and consequently, good corporate governance practices. (b) The fear of a takeover bid by the creditors of the local council will instill some discipline; (c) the capital market option will help broaden the finances of the local councils, thus making them viable to fulfill their set objectives and statutory responsibilities. (d) The use of the capital market by the local governments will invariably develop the government bond market in Nigeria; and (e) the use of municipal bonds will not contribute to the inflationary pressure in the economy, since it is an internally generated loan. For this to be achieved, the paper posits that some level of autonomy, as proved in the 1989 constitution, may be pursued by the federal government; coupled with the revitalization of the Urban development Bank of Nigeria, to enable it perform her duties of packaging the local council for the capital market.

Number of Pages in PDF File: 21

Keywords: Local Government Finncing, Municipal Bond Market

JEL Classification: H70, H77, G28

working papers series