At Habitat III in Quito (Ecuador), UNCDF and the Financing for Development Office of UN-DESA (FFDO/UN-DESA) joined forces to underline the importance of innovative approaches to municipal finance for local authorities, especially secondary cities, in the Least Developed Countries (LDCs) as a way to respond to the needs brought by rapid urbanization.

By 2050, an additional 2.5 billion people are expected to live in cities, with almost 90 per cent of the growth located in Africa and Asia. The urban population in LDCs is projected to grow by 600 million people in the next decades, which means an increase in the proportion of the urban population from 31 per cent in 2014 to almost 50 per cent. However, rapid urbanization affects not only the largest cities, but also smaller secondary cities, in particular those with less than 500,000 inhabitants. .

Thus, there is an increasing need for municipal governments in LDCs to provide basic services, infrastructure, and economic opportunities to improve the livelihood of their inhabitants. Without the necessary investment per capita, these secondary cities will not provide jobs and a decent standard of living, leading to continued migration, particularly given the growing agricultural productivity and reduction in rural employment. “This is not an easy task for these cities, which face complex implementation challenges typical of the poorest and most vulnerable countries”, says Mr. David Jackson, UNCDF’s Director of Local Development Finance. “The New Urban Agenda adopted at Habitat III provides an agreed international framework to promote municipal finance, including innovative financial mechanisms for infrastructure investments, as a key component of sustainable urban development in LDC secondary cities.”

As a contribution to this debate, in Quito, UNCDF and FFDO/UN-DESA organized a side event that emphasized the need for context-specific approaches to municipal finance in LDCs. High-level officials from the LDCs – Ms. Khady Dia Sarr from the Municipality of Dakar (Senegal), Mr. Daviz Simango, Mayor of Beira (Mozambique) and Mr. Syed Hasinur Rahman, Managing Director of the Bangladesh Municipal Development Fund engaged in a lively debate with Mr. Steve Matzie, Investment Officer (USAID) and Mr. Klaus Gihr, Head of Division Urban Development & Natural Resources (KfW), on how to strengthen international cooperation on municipal finance. Mr. Daniel Platz, Economic Affairs Officer (FFDO/UN-DESA), presented findings from regional expert consultations held by UNCDF and FFDO/UN-DESA.

The speakers agreed that the interest for municipal finance is growing, also as a reflection of the experience of cities like Dakar which has sought credit rating and attempted to issue a subnational bond. As Ms. Khady Dia Sarr from the Municipality of Dakar explained: “We have been trying to tap into local revenues for a long time because we understood that we had to develop our own solutions in response to the growing challenges.” They also emphasized the need for a holistic understanding of municipal finance, which includes an array of aspects - revenue generation, public financial management, and long-term capital investment strategies. This is especially important for secondary cities in the LDCs which often experience difficulties in preparing investment plans, as Mr. Klaus Gihr from KfW observed. Mr. Simango highlighted: “As a mayor, I need to know how much money is coming in at the end of the month.” There was round consensus among the participants that all these aspects are important and that advancing them of municipal finance should be rooted in sound national frameworks that clearly delineate responsibilities of local and subnational governments.

The representatives from the LDCs called on donors to increase their engagement at the local level, including in terms of capacity building. ”The Municipal Development Fund depends on outside support but we ought to become self-sufficient if we want to be sustainable in the long run”, said Mr. Rahman, the Managing Director of the Bangladesh Municipal Development Fund.

The donors highlighted constraints, including political, that often did not allow them to directly engage with local authorities. “It is important to open your books and make them available and reliable. If the books are transparent, this has a good effect on governance and also on finance”, said Mr. Steve Matzie from USAID.

There was a general agreement that stakeholders need to listen carefully to each other’s perspectives, follow realistic and realizable objectives and secure sustained buy-in from all layers of governments, when embarking on joint efforts to strengthen municipal finance in secondary cities in LDCs.

UNCDF and FFDO/UN-DESA announced that they are working on a joint publication on municipal finance in the LDCs which is the outcome of the regional expert consultations in Africa and Asia. The publication is due to be released in February. UNCDF and FFDO/UN-DESA are calling on experts and practitioners to provide comments at: www.un.org/esa/ffd/topics/inclusive-local-finance/municipal-finance.html.