RPT-Fitch: Emerging Market Capital Cities - Significant Borrowing Expected
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June 5 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says in a newly-published report that it expects capital cities in emerging markets to undertake significant borrowing to fund investments in infrastructure following years of neglect.
The expected pick-up in capital expenditure also follows a recent move by emerging market governments to devolve responsibilities to capital cities. Capital cities in emerging markets have up till now relied heavily on central government transfers, and, to a lesser extent, on commercial bank borrowing. In certain countries, subnationals are constrained by restrictions on borrowing. Access to the domestic and international capital markets has been limited.
The debt burden of emerging market cities is low in comparison with their international peers, which tend to range around 100% of current revenues. However, as they increase their momentum to invest in infrastructure we would expect debt to increase. This poses additional challenges as debt management culture in emerging markets is relatively unsophisticated.
Buenos Aires and Bogota have tapped the international capital markets. Moscow, St Petersburg and Johannesburg are more active in the domestic markets. Beijing is one of 10 local governments in China that has been authorised by the central government to issue bonds in the local markets under their own creditworthiness in a new pilot scheme so we expect bond issuance in the near future.
The cities of Istanbul, Moscow, St. Petersburg and Johannesburg have extensive experience in undertaking large projects. Rio de Janeiro is hosting international events resulting in large scale capital expenditure but largely financed by the central government. In some countries part of capital expenditure is undertaken directly by municipal companies or, as in China, by local government financing vehicles.
The special report, entitled 'Emerging-Market Capital Cities Comparison - Significant Borrowing Expected" is available at www.fitchratings.com or by clicking on the link below.
Link to Fitch Ratings' Report: Emerging-Market Capital Cities Comparison
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