promoting local government access to finance for local public infrastructure, an overview 2 nd...
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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
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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.
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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
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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
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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
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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
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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.
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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
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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.
![Page 10: Promoting local government access to finance for local public infrastructure, an overview 2 nd session of the Committee on Local Finance World Council,](https://reader035.vdocuments.mx/reader035/viewer/2022081519/56649f205503460f94c38561/html5/thumbnails/10.jpg)
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).
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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?
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Conclusion
• Let’s exchange experiences! • Question for the coming debate: Given the current available mechanisms, which
financial tools should be explored and developped?