Secondary abstract: |
Local self-government is an integral part of the democratic systems of governments of modern states. The essential basis for the system of local self-government in Slovenia is set out in the constitution where local self-government has been introduced as a legal institution, and it defines it as one of its fundamental democratic principles. Municipalities are defined as the basic local self-government communities. They manage their affairs independently, and carry out tasks, which have been delegated to them by law. In Slovenia there are 212 municipalities.
An essential prerequisite for the functioning of local self-government is sufficient financial capacity, since financial independence is one of the key elements of self-government. Municipalities are financed from their own resources, from public funds of the state, and from debt, which ought to be used, in the first place, for financing investments. By using debt as source of financing the amount of financial sources available is increased, and hence the possibility to realize larger investment projects. Besides this, it allows to share the burden of building certain infrastructure among generations. There is another detail supporting borrowing: self-financing is the most expensive form of financing investments, since the price of own capital is, as a general rule, higher than in the case that external financing is involved. The most popular form of public borrowing is getting a loan from a bank. In other modern economies municipalities consider, increasingly, alternative forms of borrowing, such as issuing bonds on the capital market. Bonds whose issuers are lower level authorities are called municipal bonds.
This thesis deals with the characteristics and the role of municipal bonds as an alternative source of borrowing of self-governing local communities, and the prevalence of use of this instrument in some member states of the European Union. The thesis examines factors influencing the creation and development of the market of municipal bonds. It analyses the Slovenian system of financing municipalities, and the legal framework for public debt. It compares debt of lower level authorities in Slovenia to those of EU member states. It takes a look at the Slovenian capital market, and the investors. Hypothetical savings, which would have been achieved in case that the issuers had issued municipal bonds instead of getting ordinary bank loans, have been calculated. The thesis examines to which extent conditions for issuing municipal bonds in Slovenia are fulfilled, and it assesses the potential for development of this instrument.
Municipal bonds are issued, in the first place, to finance investments in infrastructure. As a general rule, these comprise comprehensive projects, such as building local infrastructure, schools, health centers, and similar infrastructure projects being in the general interest of local communities. Issuing bonds usually represents a more favourable source of financing compared to loans from banks. The possible volume of borrowing is normally higher, and the repayment period longer. At the same time it means further diversification of financing, and a decrease in the dependence on other creditors. By issuing municipal bonds the volume of financial sources available can additionally be increased, and hence the possibility of executing larger investments. The use of cheaper sources of financing can have a positive impact on the financial situation of municipalities that, in turn, can use possible savings for other investment projects.
Despite the wide-spread use of this instrument abroad, a look at the existing legal framework reveals that in Slovenia municipal borrowing in the form of issuing bonds is not possible. |