The city of Ulaanbaatar (UB) had reached a secure budgetary position to fulfill its goal for obtaining creditworthiness and issuing municipal bonds to mobilize financial resources. But it lacked the knowledge and experience to move forward. Finding the cities with the necessary experience to share, UB engaged Johannesburg and Tshwane (Pretoria) in an exchange to learn how to prepare for a credit rating assessment and take actions for successful bond issuance.

Challenge

A 2011 Budget Law in Mongolia allows for transparent and predictable intergovernmental fiscal transfers and gives local governments—for the first time—the authority to borrow and issue bonds. The city of Ulaanbaatar wished to take advantage of this new law that would mobilize resources to make capital investments to meet the needs of its citizens and promote overall economic development for long-term growth. A rapidly growing population had created demand for more and better quality municipal services. Ulaanbaatar sought to expand its financing sources for capital investments for public infrastructure in order to enhance service delivery. With a rapidly growing economy driven by a mining boom and the city's own strong revenue base, Ulaanbaatar was in a positive budget environment. However, the city lacked the knowledge and experience needed to become creditworthy as well as a clear understanding of the opportunities and the pitfalls associated with municipal bond issuance.

Solution

City officials from Ulaanbaatar (UB) requested an exchange with the cities of Johannesburg and Tshwane, South Africa. Both cities have been consistently rated creditworthy and have significant experience in issuing municipal bonds that had been preceded by effective municipal budgeting and financial management practices. The UB officials hoped to learn how these cities had successfully planned and implemented capital investments and how they had prepared for, issued, and managed municipal bonds, including fulfilling requirements for obtaining good credit ratings.

In preparation for the exchange, a virtual dialogue by videoconferencing occurred on November 25, 2013, to introduce participants and clarify objectives and expectations for the planned study tour. Additionally, South African documents (translated into Mongolian) were shared with the UB delegation to help them to prepare.

UB officials were in South Africa, December 1-8, 2013, for a study visit. An orientation meeting was organized at the start to review expectations. During the visit, participants had meetings with officials of the South African National Treasury, South African Cities Network, City of Johannesburg, City of Tshwane as well as representatives at Moody’s, Standard Bank, and the Maboneng City Improvement District. A visit to Soweto area and the central business district of Johannesburg also helped the delegation to witness the types of municipal services provided and effective institutions and systems needed to mobilize the required resources. They learned how various bodies at different levels of government work together on financial planning and management. At a wrap-up session, all participants reviewed the lessons learned and agreed upon follow-up actions.

Following the visit, a consultative workshop was held in Mongolia to disseminate the findings and lessons to a broader range of stakeholders in bond issuance, debt management, and capital investment planning functions.

Results

• Enhanced knowledge and skills concerning the preparations for bond issuance and the need to integrate bonds into broader city financial planning. As a result of the exchange, the UB government created a work plan and timetable, with a clear timeline for implementation of measures to improve creditworthiness and debt management functions.
• Enhanced networks helping to establish relations with South African counterparts. UB representatives participated in a Bank-supported City Creditworthiness Academy in late April 2014. UB officials were able to apply lessons learned from South Africa and contribute actively in technical discussions with their counterparts across Asia who attended the Academy.
• Raised awareness of the importance of a credit rating for accessing the bond market and the process required to achieve creditworthiness. It also raised awareness of the importance of having a rigorous and comprehensive body of laws to guide and enable sustainable municipal borrowing. As a result, UB decided not to rush to bond issuance. UB is now preparing a bond regulation having learned that it is critical to put in place the right systems and institutions.

According to one participant (from the participant evaluation), the thing most useful to understandwas the “arrangements for ensuring the involvement of the private sector in the urban and land redevelopment activities, and the excellent repayment scheme [as established in South African cities] for municipal bonds and its successful implementation.”

Lessons Learned

• The design of knowledge exchanges needs to be driven by and focused on client demand. The client needs to be consulted at every major stage of planning to ensure that the program design responds directly to their needs and interests.
• The knowledge exchange needs to fit into the Bank's overall strategic partnership with the client so as to complement other activities. This will ensure that the knowledge gained and capacity built will have a ripple effect to the broader stakeholders among the city leadership and fit into the design of follow-up activities as appropriate.

World Bank Group Contribution

This exchange was supported by funds from the South-South Facility and also included Bank expertise in facilitating contacts between knowledge providers and recipients. At the request of the City of Ulaanbaatar, the Bank team organized the knowledge exchange program to provide UB with an opportunity to learn from the experience of their South African peers about (a) the process of planning for and implementing capital investments and broader financial planning; and (b) preparing, issuing, and managing municipal bonds, including fulfilling requirements to obtain creditworthiness.

Partner

Knowledge providers in South Africa including representatives of the following agencies:

• National Treasury
• South African Cities Network
• Moody’s
• Standard Bank
• City Manager, Johannesburg
• Johannesburg Finance, Revenue and Customer Relations, Development Planning and Facilitation Departments
• Chair, City Council, Finance Committee, Johannesburg
• Johannesburg Development Agency
• Representatives, Johannesburg Region F
• Chair, Mayoral Committee for Finance, Tshwane
• Acting Deputy City Manager, Tshwane
• Head, Economic Development, Tshwane
• Head, Group Financial Services, Tshwane
• Maboneng City Improvement District

Moving Forward

Key priorities for the UB delegation going forward include (i) improving the legal framework on municipal borrowing, (ii) preparing for credit rating, (iii) implementing and strengthening municipal service charges and user fee collection, and (iv) long-term strategic and spatial planning to guide the city’s development, utilizing a database system of investment needs and financing sources. The UB delegation plans to establish a bi-lateral relationship through a twinning arrangement with the two municipalities, and to share knowledge from the exchange with members of the Bond Council and wider stakeholders in the city administration.

Beneficiaries/Participants

Ulaanbaatar, Mongolia, participants included:

• Vice Mayor, Finance and Economics
• Member, City Council, Economic Standing Committee
• Director, Strategic Policy and Planning Department
• Chief City Budget Officer, Treasury Department
• General Director, Economic Development Agency
• Head, City Auditing Agency
• Head, Property Relations Agency
• Interpreter

Learn More

• Mongolia - Ulaanbaatar financial self-assessment (English)

• Mongolia - Preparing for debt management in Ulaanbaatar : issues to consider (English)