Municipal bonds as a tool for financing capital investment in local government units in Palestine

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Municipal bonds are an option available to many cities to raise long-term financing to finance the infrastructure projects. This study aims to develop and find local measures of creditworthiness that are suitable and applicable for local government units in Palestine. Different variables are recognized to see the effect on the issuance of municipal bonds, macroeconomic variables measured by revenues and expenditures per capita, cost of capital, and unemployment rate. Municipal status variables have subgroup variables of municipality size, financial reporting quality, outstanding debt, and financial distress. Various financial ratios, comparative and cross-sectional analysis, horizontal and vertical analysis were used. These ratios and analysis have been used to determine the municipal status variable. The results of the study were limited to the largest 11 sample municipalities; each is the central local government unit at the governorates and was not generalized for all municipalities in Palestine. The study found that macroeconomic and municipality status affects the issuance of municipal revenue bonds. Based on the study results, municipal bonds are highly recommended. Also, instructions from the Ministry of Local Government need to be established and to enforce municipalities about the declaration date of publishing audited financial statements.

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    • Table 1. Ratios employed in the analysis
    • Table 2. Unemployment in Palestine by governorate
    • Table 3. International investment position in Palestine
    • Table 4. Interest rates on loans and deposits during 2016–2017
    • Table 5. Comparison of Palestinian national budget
    • Table 6. Net income growth rates (%) for the period 2014–2017
    • Table 7. Revenues and expenditures analysis
    • Table 8. Ratios benchmark of Palestine
    • Table 9. The highest and lowest values of the ratios
    • Table 10. Disclosure index of sample municipalities
    • Table 11. Requirements of accrual basis by IPSAS
    • Table 12. Disclosure of financial statements
    • Table 13. Statement of cash receipts and payments
    • Table 14. Municipality’s financial statements according to the accrual basis by IPSAS
    • Table 15. Final analysis of macroeconomic and status variables