Sample Material of Current Public Administration Magazine

Urban Development

City Creditworthiness Initiative: A Partnership to Deliver Municipal Finance

Context

Cities across the world are growing and polluting at unprecedented levels. The World Bank estimates that cities will attract an additional 2 billion people by 2050, and will produce well over 70% of global greenhouse gas emissions. Already under pressure, infrastructure and basic services such as transport, solid waste management, education or sanitation will need to be expanded significantly in order to serve these growing populations.
The investment required is immense: developing countries need an extra $1.3 trillion of investment in public infrastructure a year just to keep pace. Traditional sources of financing from central governments and international aid organizations won’t be nearly sufficient to meet the demand. Cities will need to innovate and access private sources of long-term financing through local capital markets and commercial partnerships.

However, in order to attract investment from private sources cities need to first be creditworthy. They need to manage finances, plan development and engage citizens using methods that emphasize sustainability and transparency. Recent estimates show that less than 20% of the largest 500 cities in developing countries are deemed creditworthy in their local context, severely constricting their capacity to finance investments in public infrastructure.

Supporting cities on the path to creditworthiness is the crucial first step in unlocking the larger, longer-term, sustainable investments that will provide critical services to resident populations and foster green growth through climate-smart urban development.

Strategy

Helping local and municipal governments access financing has become an integral part of the World Bank’s sustainable urban development strategy. To that end, the Bank has developed the City Creditworthiness Initiative to provide local authorities with comprehensive, hands-on, and long-term support and help them:

• Achieve higher creditworthiness by strengthening financial performance;
• Develop an enabling legal and regulatory, institutional, and policy framework for responsible sub-national borrowing through reforms at the national level;
• Improve the “demand” side of financing by developing sound, climate-smart projects that foster green growth;
• Improve the “supply” side of financing by engaging with private sector investors.

The City Creditworthiness Initiative is comprised of two primary components:

• City Creditworthiness Academies are hands-on learning programs that teach city leaders the fundamentals of creditworthiness and municipal finance, including issues determined by the enabling environment and options for financing: revenue management and enhancement; expenditure control and asset maintenance; capital investment planning; debt management; and, scoping out options for financing. Using a preliminary self-assessment tool, participants develop a customized preliminary action plan of specific institutional reforms, capacity building, and other actions that will improve their creditworthiness and their ability to plan, finance and deliver infrastructure services.

• The Academies serve as the launching point for City Creditworthiness Implementation Programs: In-depth, multi-year, on-the-job, customized technical assistance programs to help them prepare for, structure, and close market-based financing transactions for climate-smart infrastructure projects, using local currency markets whenever possible. The range of interventions is wide, encompassing everything from improving national legal and regulatory frameworks, to increasing the use of data in decision- and policy-making, improving revenue collection and management systems, and reforming capital improvement planning and budgeting.

Results

The Initiative has set the ambitious goal of assisting 300 cities in 60 low- and middle-income countries on the path to green growth and creditworthiness. So far, some 245 senior financial and urban planning officers have participated in City Creditworthiness Academies, representing a total of 82 cities across 23 different countries. Actions related to enhancing own source revenues, climate-smart capital investment plans, credit ratings, PPPs projects structuration, tax increment financing were identified and resources were allocated to finance them.

Partners

The City Creditworthiness Initiative was conceived to coordinate and integrate existing efforts, instruments, knowledge and resources by identifying the most effective solutions and implementation arrangements for sub-national entities. For that reason, the Initiative is being implemented by the World Bank Group in close cooperation with a growing network of partner agencies.

(Source- World Bank)

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