Ahead of the upcoming third conference of the Malaga Global Coalition for Municipal Finance from 5-6 October 2023 to be held in Malaga, Spain, the United Nations Capital Development Fund (UNCDF) is producing a policy brief series featuring the five areas of the Malaga Coalition agenda. This is the second brief of the series, highlighting the importance of leveraging own source revenues to realize the power of local governments

The Malaga Global Coalition for Municipal Finance created by UNCDF and UCLG in collaboration with FMDV advocates for a global financial ecosystem that works for cities and local governments. Based on the outcomes of the first two Malaga Coalition Conferences, five elements of the financial ecosystem have been identified as the policy agenda towards the Third Conference: intergovernmental fiscal transfers, own source revenue, domestic capital markets for long-term debt financing, city friendly equity finance, and a guarantee fund for cities.

These five interlinked elements will create an ecosystem for sustainable subnational financing, ensuring that external investment is balanced with strengthened local revenue and capital markets, and further reinforced with mechanisms to defray sovereign credit rating risk.

An essential element of local government finance is own source revenues (OSRs), which consists of taxes and fees that a local government is authorized to collect. OSRs are strategically important for transformative infrastructure development because they often support the operation and maintenance of local assets. Ensuring proper budget allocation for the financial, human, and material resources to manage assets over their lifespan is critical because it allows continued delivery of essential services for citizens, such as transport, water and sanitation, and solid waste management.

OSR also provides a means for local governments to collect information about the level and quality of public services that their citizens desire as local governments need to provide improved services in exchange for taxes. Increasing OSR can also provide funding to cash-strapped localities whose responsibilities often surpass funding received from the national government, which could help facilitate access to credit for more infrastructure investment at the local level.

Read about the importance of own source revenue in this policy brief