Promoting local government access to finance for local public infrastructure, an overview
2nd session of the Committee on Local FinanceWorld Council, Marrakech, November 1st, 2006
Thomas Meekel, Project Manager, CGLU
Agenda
1/ There is a variety of financing mechanisms for local public infrastructure.
2/ However, these mechanisms are developing over
time and may not be available for all LGs in a given national context.
3/ This session focuses on financial intermediairies created at national level to boost local public infrastructure.
LOCAL GOVERNMENT
CENTRAL STATE
FIN
AN
CIA
L M
AR
KE
TS
PUBLIC BANKS
CITIZENS
LOCAL PUBLIC UTILITY
NATIONAL PUBLIC UTILITY
a. Traditional Public Financing Methods – Direct funding
1/ FINANCING MECHANISMS
TA
XE
S
TA
XE
S
LOANS
SAV
ING
S
BONDS
BONDS
LOANSGuarantee
Grants
b. Traditional Public Financing Methods – Trough a Public Utility
LOCAL GOVERNMENT
CENTRAL STATE
FIN
AN
CIA
L M
AR
KE
TS
PUBLIC BANKS
CITIZENS
LOCAL PUBLIC UTILITY
NATIONAL PUBLIC UTILITY
FE
ES
FE
ES
1/ FINANCING MECHANISMS
TA
XE
S
TAX
ES
LOANS
SAV
ING
S
BONDS
BONDS
Guarantee
Guarantee
c. Traditional Public Private Financing Methods
1/ FINANCING MECHANISMS
LOCAL GOVERNMENT
CENTRAL STATE
FIN
AN
CIA
L M
AR
KE
TS
PUBLIC BANKS
CITIZENS
PRIVATE BANKS
PPP / CONCESSION
FEES
LOANS
BONDS
Guarantee
Intermediate conclusions
• Non revenue generating infrastructure projects will need abondment of taxes to obtain long term financing
• Local Government investment needs compete with other investment needs and demands (State, business, individuals): LGs are rarely served first!.
• Given public finance constraints, taping private savings is key for expanding the financial envelope.
.
•There is no borrowing unless:1/ Regular future income flows are secured,
2/ An implicit or explicit guarantee mechanism protects the lender in case of non repayment.
1/ FINANCING MECHANISMS
Agenda
1/ There is a variety of financing mechanisms for local public infrastructure.
2/ However, these mechanisms are developing over
time and may not be available for all LGs in a given national context.
3/ This session focuses on financial intermediairies created at national level to boost local public infrastructure.
Developing a Sound Local Credit Market
2/ AVAILABILITY OF THESE FINANCING MECHANISMS
Conditions for a developing local credit market
MACRO ENVIRONMENT
POOR GOOD
CITY EMPOWERMENT
POOR A C
GOOD B D
Source: Cities Alliance 2005 Annual Report
A long evolution: From a nascent to a developing local credit market, providing access to finance for local public infrastructure for a growing number of LGs
Agenda
1/ There is a variety of financing mechanisms for local public infrastructure.
2/ However, these mechanisms are developing over
time and may not be available for all LGs in a given national context.
3/ This session focuses on financial intermediairies created at national level to boost local public infrastructure.
a. A simplified typology3/ SPECIALISED FINANCIAL INSTITUTIONS
1. INVESTMENT FUND: . Delivers mainly grants and marginally credit.. Example: FEICOM (Cameroon).
2. SPECIALISED FINANCIAL INSTITUTION:. Depends from the State and ODA, delivers medium to long term credits
and grants.. Example: FEC (Morocco).
3. DEVELOPED SPECIALISED FINANCIAL INSTITUTION.
. Finds its resources on the financial markets, provides credit under market conditions.
. Example: FINDETER (Columbia), CAIXA (Brazil).
b. Are they successful?
3/ SPECIALISED FINANCIAL INSTITUTIONS
- In broadening access to finance for LGs:Do SFI allow medium and small LGs to access finance for their
infrastructure through credit and grants their infrastructure?
- In developing the local credit marketDo SFI support transition to market based municipal credit market systems?
Conclusion
• Let’s exchange experiences! • Question for the coming debate: Given the current available mechanisms, which
financial tools should be explored and developped?
