Guaranteeing loans to and by municipalities: The legal framework, problems and solutions
Local government is one of the key state institutions charged with the task of realising socio-economic rights. Central to discharging this obligation is access to adequate financial resources.
Loan capital is one of the imporant sources of finance. The Constitution provides that the national government, a provincial government or a municipality may guarantee a loan only if the guarantee complies with any conditions set out in national legislation. David Ailola points out that the guarantee of municipal loans by the other spheres of government would facilitate access to the capital market but could also increase the possible debt burden on the state. He analyses current legislation regarding the regulation of guarantees and finds that there are few principles that guide the granting of guarantees to or by local government. National legislation on this issue is thus urgently needed.