Empowering Cities to Implement the 2030 Agenda and New Urban Agenda:

Mobilising Municipal Finance for Sustainable Infrastructure in Asia-Pacific

Today’s Presentation

1.  Background, context and key questions

2.  The infrastructure gap in Asia-Pacific 3.  Key components of municipal

financing systems 4.  Financing instruments which assist in

leveraging capital 5.  Summary reflections for discussion

§  Part of UN Secretariat: 62 member states - 58 are regional members

§  ESCAP covers the world’s most populous region - two thirds of humanity

§  Based in Bangkok, with 4 Sub-regional offices

§  ESCAP fosters: -  regional cooperation through an

intergovernmental platform to promote social & economic development

-  normative, analytical & technical cooperation at the regional level

-  a platform for South-South dialogue / exchange of practices

Regional Partners Forum @Quito+1 28-29 November 2017, Bangkok

Over 70 representatives from 17 countries

met one year after Quito to drive implementation

of the outcomes of Habitat III and

localisation of the SDGs in Asia Pacific

Priorities for Effective Implementation at national and local levels

Financing

Data

Local partnerships

National Urban Policies

2030 Agenda and Cities

Cities well positioned for the implementation of Global Development Agendas

Key question

What are the enabling institutional conditions which need to be in place for cities to be able to leverage long term financing for sustainable infrastructure to deliver against global development agendas?

What’stheinfrastructuregapinAsia-Pacific?

Whichpublicgoodsneedtobefinancedatthecitylevel?

Whatarethekeycomponentsofafunctionalmunicipalfinancingsystemtosupportinvestmentinsuchgoodswhichgovernrelevantpolicydecisionmakingandaction?

Whatarethefinancialinstrumentswhichlocalgovernmentshaveattheirdisposalwhichcanbeusedtoleverageprivatefinancefortheseinvestments?

Empowering Cities to Implement the 2030 Agenda and New Urban Agenda: Mobilising Municipal Finance for Sustainable Infrastructure in Asia-Pacific

The current GAP

InfrastructureNeedsandGaps:AsiaPacific,USDBillion2015prices

EstimatedCurrentInvestment(2015)

BaselineEstimates

AnnualNeeds Gap Gap(%ofGDP)Total(25) 881[5.5] 1,211 330 1.7TotalwithoutChina(24) 195[3.8] 457 262 4.3SelectedLowtoLowerMiddleIncomeCountries(18) 178[4.2] 422 244 4.7withoutIndia(17) 60[2.9] 192 132 5.4

SelectedUpperMiddleIncomeCountries(7) 703[6.0] 789 86 0.6withoutChina(6) 17[2.0] 35 18 1.8

SelectedCentralAsiaCountries(3) 6[2.9] 11 5 2.3

SelectedSouthAsiaCountries(8) 134[4.8] 294 160 4.7

SelectedSoutheastAsiaCountries(7) 55[2.6] 147 92 3.8SelectedPacificCountries(5) 1[2.7] 2 1 6.2India 118[5.4] 230 112 4.1Indonesia 23[2.6] 70 47 4.7China 686[6.3] 753 68 0.5EstimateswithinparenthesesarenumberofcountriesandthoseinbracketsarepercentagesofGDPSource:basedonADB,2017

Empowering Cities to Implement the 2030 Agenda and New Urban Agenda: Mobilising Municipal Finance for Sustainable Infrastructure in Asia-Pacific

PublicandPrivateInfrastructureInvestment,2010-2014(%ofGDP)

Private Public

25ADBDevelopingMemberCountries 0.4 5.1

EastAsia 0 6.3

SouthAsia 1.8 3

CentralandWestAsia 0.3 2.6

ThePacific 0.3 2.5

SoutheastAsia 0.5 2.1

China,People'sRepublicof 0 6.3

India 2.1 3.3

Indonesia 0.3 2.3

Source:ADB,2017

The Future GAP

TotalinfrastructureinvestmentneedsfortheregionwillreachUS$22.6trillionoverthenext15years(2016to2030)

Publicsectorreformsonbothtaxrevenuesandexpenditurescanmeetaround46%ofthisgap(US$121billionoutof

US$262billion)betweencurrentandneeded

investments

Theresultisa54%gap(orUS$141billion)specifically

forprivatesectorinfrastructurefinance

Waterandsanitation.Asia-Pacific’sprojected

investmentneedsinwaterandsanitationfor

2016-2030basedon2015pricesstandsat

approximatelyUS$787billion,withclimate

adjustedestimatesatover800billion.

Transport.Asia-Pacific’sinvestmentneedsin

transportfor2016-2030basedon2015pricesstandsatapproximatelyUS$7,796

billion,withclimateadjustedestimatesatover

8,300billion.

Energy.Thissectorhasthelargestinfrastructure-

financinggap.Asia-Pacific’sinvestmentneedsinpowerfor2016-2030basedon2015pricesstandsat

approximatelyUS$11,689billion,withclimate

adjustedestimatesatover14,700billion.

The Future Gap - sectors

Which public goods need to be financed at the city level?

The financing challenge higher in the second category, named as

the "missing middle”, where private capital needs to be supported by public funds

• first,investmentsthataremoreinthenatureofpublicgoods

• second,investmentsthataremoreprivatizedinnature

• third,purerevenueprojects

From a financing perspective,

urban infrastructure

investments can be divided into three categories

What are the key components of a functional municipal financing system to support investment in such goods which govern relevant policy decision making and action?

Actionsthatenhancethepowersofcitiesto

• Improvetheirownrevenuesources(OSR),• Rationalizeintergovernmentaltransfers(IGFT)• Providetheregulationsforaborrowingframework(BF)thatcanattractlong-termcapital

What are the key components of a functional municipal financing system to support investment in such goods which govern relevant policy decision making and action?

Debtfinancingdependsontherationalityofthe

intergovernmentalfiscalrules

De-riskinvestments

Policiesthatempowerlocalgovernmentsthrough

rationalizingintergovernmentalflows,

strengtheningownrevenuesandfinancialintermediaries

Investinstructurestopoolthesedemandsandlowerrisksthroughefficient

intermediation

Financing instruments which assist in leveraging capital – Fiscal decentralisation

Fiscaldecentralisation

BenefitsandRiskstodevelopingcountries

•  Designandmanagementofintergovernmentaltransfers•  Canincreasetheefficiencyofpublicfinances•  Transfersmaycontinuetoplayanimportantroleinordertosupplementlocaltaxation•  Ensureappropriateaccountability•  Needtoberationalandpredictable•  Coordinationbetweennational,regional,andlocalgovernmentsiskey

Financing instruments which assist in leveraging capital – debt financing

DebtFinancing

BenefitsandRiskstodevelopingcountries

•  Creditworthynationalgovernmentscancollaboratewithcitiestoidentifyinvestmentpriorities

•  Secondarymarketsandinstrumentsreducethecostoflonger-termlocalcurrencyfinance

•  Citiesneedsufficientown-sourcerevenuesformakingdebtrepayments,alongwithcapacityforbudgetary,accounting,andfinancialmanagement

•  Riskmitigantsandcreditenhancements

Financing instruments which assist in leveraging capital – PPPs

Public–privatepartnerships BenefitsandRiskstodevelopingcountries

•  PPPscanplayaroleindeliveringurbaninfrastructureprojects•  Allocaterisksbetweenpublicandprivateentities•  Involvecommercialreturnsonrevenue-generatingassets

•  UniverseofsuitableprojectsforPPPsislimitedprincipallytothosethatcangeneratesufficientincome-backedreturns

•  EffectivenessofPPPshasbeenmixed

Financing instruments which assist in leveraging capital – LVC

Landbasedfinancing

BenefitsandRiskstodevelopingcountries

•  Helpsfinancelargeurbantransportanddevelopmentprojects

•  NationalgovernmentscanincentivisemunicipalitiestoassessandimplementLVCasaconditionofallocatingnationalfundstopart-financeinfrastructureprojects

•  Nationallegislationandframeworksarecriticalenablersforcreatingtherevenuestream

•  Higherlevelsofgovernmentoftenretainthepowertosetassessmentparametersortaxrateswhichrepresentsasignificantrisk

•  LVCismostriskywhencombinedwithanineffectivetaxsystemandopaquepropertymarket

Financing instruments which assist in leveraging capital

TamilNadu,India:EmpoweringMunicipalDecisions

•  Linkingfiscaltransferstostatetaxes(rulebasedratherthanonpatronage),strengtheningownsources(includingpowerstosetrates)andsettingupasupplysideintermediary

• Demonstratedthatdomesticprivatedebtcanfinancemunicipalinfrastructureatlowcosts

• Marketaccessforsmallandmediumcities,demonstratingtheadvantagesofpoolinginovercomingsmallsizeofissues

Financing instruments which assist in leveraging capital

ThePublic-PrivatePartnershipCenter(PPPC)ofthePhilippines

• PPPCassistsandsupportsimplementingagenciesanddepartmentsonprojectpreparation

•  EstablishmentoftheProjectDevelopmentandMonitoringFacility(PDMF)in2010

• Byend2016,PDMFhadcommittedatotalofnearlyUS$56million• MorethanUS$4.3billionofprivateinvestmenthasbeensecured

Financing instruments which assist in leveraging capital

LandBasedFinancingintheRepublicofKoreaLandandHousingCorporation(KLHC)

•  KLHCfinancednewtransportinfrastructure,suburbanrailwaysandexpressways

•  Companiesboughtsomeofthenewlydevelopedlandforhousing•  Usersalsobenefitedfromappreciatedvalues•  From2001to2008,38landdevelopmentprojectswerebuilt-theaveragelandvaluecaptureperprojectwasaroundUS$559billion(21.5%)oftheaverageUS$2.6billionprojectcost-totallandvaluecapturedreachednearlyUS$2.8trillion

In conclusion

Combiningtheaboveinstrumentswithenhancingthepowersofcitiestoimprovetheirownrevenuesources,rationalizeintergovernmentaltransfersandprovidetheregulationsforaborrowingframework

capitalizingonthebenefitsandreducingtherisksinanintegratedfashioncanattractlong-termcapital

Thesepolicymeasureslieundergovernmentcontrolorinfluenceandhavesupportingevidenceofpreviouseffectiveness

What do you think?

How can we support a more enabling environment for cities to be able to leverage long term financing for sustainable infrastructure?

Thank you! www.escap.org

Supporting the Implementation of Agenda 2030 and the New Urban Agenda