Highlights
- Municipalities in low- and middle-income countries face substantial financing needs for urban infrastructure. However, current investment flows are only a small fraction of these needs.
- The report identifies key constraints to repayable financing for municipalities, including demand-side, supply-side, and regulatory constraints. These hinder municipalities' ability to mobilize repayable finance and attract private sector investment.
- To address these challenges, the report recommends strengthening the funding base of municipalities, improving financial management and data, enhancing absorptive capacity, and reforming regulatory frameworks. Additionally, it emphasizes the need for cautious and strategic supply-side interventions to reduce investment risks and crowd in private finance.
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Municipalities in low- and middle-income countries confront financing needs that greatly exceed available flows. Currently, most investment in municipal infrastructure is financed directly from public fiscal sources, but needs cannot be met by existing public and international development sources alone. Much greater use of private and commercial financing will be required.
This new World Bank Group report, Unlocking Subnational Finance: Overcoming Barriers to Finance for Municipalities in Low- and Middle-Income Countries, is intended to address this development challenge:
- It provides a snapshot of repayable financing flows to municipalities in developing countries, showing that such flows have been extremely restricted in recent years.
- It identifies the chief factors that contribute to these restricted flows, along three dimensions: municipalities’ effective demand for finance, the supply of finance, and the intermediating regulatory environment.
- Finally, it offers recommendations for municipalities, national governments, and development partners to address these constraints.