LocationsUN JOINT PROGRAMME ASSIST LAUNCHES STUDY ON INDONESIA'S MUNICIPAL BOND LANDSCAPE
June 1, 2023
The United Nations Development Programme (UNDP) Indonesia and the United Nations Children's Fund (UNICEF) Indonesia, in partnership with the Ministry of Finance of the Republic of Indonesia, have initiated a study titled "Assessment of Indonesia's Municipal Bond Landscape."
Examining the Potential of Municipal Thematic Bonds for Subnational Development Projects
The United Nations Development Programme (UNDP) Indonesia and the United Nations Children's Fund (UNICEF) Indonesia, in partnership with the Ministry of Finance of the Republic of Indonesia, have initiated a study titled "Assessment of Indonesia's Municipal Bond Landscape." This study aims to analyze the municipal bond and sukuk landscape in Indonesia and explore the possibility of issuing municipal thematic bonds to fund crucial sustainable development projects at the subnational level.
The study focuses on financing instruments that can fund projects related to waste management, health, education, gender equality, and child welfare, among others. It builds upon the successful implementation of innovative financing mechanisms in Indonesia, such as Green Sukuk for environmentally oriented projects and SDG Bonds for socially oriented projects aligned with the Sustainable Development Goals (SDGs).
Moreover, the study conducted an analysis to identify provinces with the greatest potential for issuing municipal bonds based on fiscal capacity, institutional capacity, sectoral financing needs, and various indicators such as the Debt Service Coverage Ratio (DSCR), the Government Institution Performance Accountability System (SAKIP), environment quality index, and gender empowerment index. These findings were summarized along with a set of recommendations for stakeholders to enhance the supportive environment for municipal bond issuance.
According to Luky Alfirman, the Director General of Fiscal Balance at the Ministry of Finance, the Government of Indonesia’s priority is to strengthen fiscal harmonization and leverage alternative financing for regional development through local debt financing, specifically municipal bonds or sukuk. The Government acknowledged the first municipal bond issuance will present challenges and necessitate careful attention from relevant stakeholders. The study's findings are expected to serve as a reference and provide insights to advance the strengthening of the enabling environment for municipal bond issuance.
UNDP Indonesia has maximized the impact of thematic bond instruments at the national level and recognizes the potential for replication at the subnational level.
UNDP Indonesia has maximized the impact of thematic bond instruments at the national level and recognizes the potential for replication at the subnational level. Municipal bonds have the capacity to promote sustainable development at the subnational level and can create tangible opportunities that benefit all community members, including women and vulnerable groups.
For UNICEF Indonesia, municipal bonds have the potential to uphold children's rights and finance programs that can directly and indirectly benefit children. This includes the construction of schools, health centers, and other infrastructure related to child health and education.
The UN Joint Programme 'Accelerating SDGs Investment in Indonesia (ASSIST)' brings together UNDP, UNEP, UNICEF, and UNIDO under the coordination of the UN Resident Coordinator. ASSIST aims to support the Government of Indonesia in meeting its SDG targets by scaling up proven and new financing instruments and providing capacity building to improve institutional capacities. Indonesia is one of four countries receiving funding from the UN Joint SDG Fund, and with the support of ASSIST, it has mobilized over USD 1 billion to accelerate sustainable development.
The study on Indonesia's municipal bond landscape is expected to serve as a source of knowledge, literature, and a guide for stakeholders, to help strengthen the enabling environment for municipal bonds and promote subnational development through innovative financing mechanisms. By exploring the potential of municipal thematic bonds, Indonesia can unlock new opportunities to finance projects that contribute to its sustainable development goals.
