Against a background of fiscal restraint, governments in developing countries have come to realize that private resources must be mobilized to support the growing demand for infrastructure services. One way is through privatizations and concessions for private provision of infrastructure services which are taking place at a growing pace. Decisions for the provision of these services are also being increasingly decentralized with municipalities playing a growing role in forging partnerships with financiers, operators and constituents.

Municipal governments seek to fund capital investments and cover operating costs through local taxes and user charges and, as available, central government  ransfers. Where essential services—that are not provided through private operations—cannot be funded by current revenues, the financing gap that emerges would have to be filled through borrowings. In many developing countries, local government borrowings have largely been confined to loans from commercial banks or specialized financial institutions, often with central government guarantees.

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Municipal bond markets provide a vehicle to narrow local governments resource gap through schemes varying from debt funding based on the full faith and credit of sub-sovereign issuers, to revenue bonds secured by the earnings of such projects as water facilities and toll roads. This note reviews the main characteristics of the US municipal bond markets-the most advanced by any measure of depth and sophistication. A separate note discusses the conditions underlying the development of municipal credit markets in developing countries.

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I – Taking stock

1. Since independence, Lebanon has been periodically plagued by conflict and strife within and across its borders. A lingering state of unstable equilibrium exacted a heavy toll in lives and livelihoods, confining the country at times to the intensive care unit, and continues to threaten its existence, fray its national unity, weaken its society’s cohesion, and undermine its institutions. Read more