Types, risks and market of municipal bonds

Municipal bonds are issued by cities, municipalities or other local communities in order to quickly raise funds to cover current budget deficits, finish infrastructure projects for production and distribution of thermal energy, improve water supply, road construction, sports and recreation centers, schools or to fund such projects on more favorable terms than to borrow from banks. In this manner, necessary conditions are created for faster development of the real sector. The aim of this study is to evaluate the importance, possibilities and effects of the bond issue in the Republika Srpska aimed at securing funding for and development of local communities. Good examples that local government bonds enhance community development include capital markets in countries that have made the transition from the socialist system design, similar to the market of the Republika Srpska, like the Polish, Slovakian, Hungarian and Croatian markets. Issues of municipal bonds in the Republika Srpska succeeded mostly due to the workings of Investment-Development Bank of RS. However, it certainly shows that further high-quality municipal bonds could attract more interest from various institutional investors, especially mutual funds and insurance companies, and investors who are more risk-averse will be able to familiarize and inform themselves with the functioning of capital markets. In this manner, our capital market would confirm its essential role and thus become a generator of overall economic development of the Republika Srpska because it would enable more efficient collection and allocation of capital resources