57038 FAST TRACKBRIEF March 9, 2009 The IEG report "Improving Municipal Management for Cities to Succeed," was discussed by CODE on March 9, 2009 Improving Municipal Management for Cities to Succeed Cities now host half the world's population and provide 70 percent of world GDP. Managing them well is vital for development. The Bank has assisted nearly 3,000 municipalities worldwide over the past decade. This Bank assistance has helped strengthen the planning, finance and service provision dimensions of municipal management through 190 operations identified by IEG as municipal development projects (MDPs). Best results for municipalities came through stronger flows of revenues, better financial management, information systems and ability to manage procurement. Weaker results were found in monitoring and evaluation, operations and maintenance, private finance of services and lack of poverty focus. Wholesale MDPs serving many municipalities had better outcomes than retail MDPs serving just a few. Performance based criteria for municipal participation and greater competition may help explain the stronger wholesale performance, but more in-depth analysis of causal factors is needed. T he purpose of this IEG special study is to illuminate the scale and scope of Bank support for municipal development and to draw specific lessons from the achievements and failures of a sample of individual projects. The study focuses on three dimensions of municipal management--planning, finance, and service provision--that figure repeatedly in Bank-financed MDPs. The planning dimension refers to the capacity of a municipality to The findings of the study are based on a review of all 190 forecast and oversee its own progress. It includes MDPs completed or ongoing during 1998-2008. In information systems, monitoring and evaluation (M&E), consultation with World Bank operational staff, IEG city planning, and investment strategies. The finance identified MDPs as projects with objectives and components dimension refers to how a municipality manages the focused on strengthening municipal management in cities resources needed to provide services to its constituents. It having 12,500 inhabitants or more. Of these 190 MDPs, the covers financial management, own-resource mobilization, 114 completed operations are the principal source for the access to credit, and private funding. The service provision evaluation findings. Ninety MDPs were studied through dimension refers to the capacity of a municipality to IEG desk reviews of Implementation Completion Reports manage the services required by city residents and business (ICRs), and 24 were the subject of detailed IEG field people through the effective prioritization of investments, assessments, summarized in Project Performance management of competitive procurement, and sustaining of Assessment Reports (henceforth called PPAR MDPs). services through operations and maintenance (O&M). Overview of Bank Support for Municipal striking absence of population data for the municipalities they serve. Management From FY1998-2008, the Bank committed $14.5 billion, 3.4 All MDPs in the portfolio of 190 have aimed to strengthen percent of its total lending, to these 190 MDPs. The municipal management in one or more of its planning, projects have assisted nearly 3,000 urban municipalities-- finance, or service provision dimensions. Surprisingly given about 15 percent of all those in developing countries, more its priority in the Bank's urban strategy and the Bank- than a third of which are in the Latin America and supported Cities Alliance, better planning has been an Caribbean Region. The level of MDP support to an objective of just one-third of MDPs, the least attention individual municipality has varied enormously, from tailor- among the three dimensions. Finance has been addressed made technical assistance and significant investment in MDP objectives more than half the time. Service funding to training just a few municipal staff. Up to 345 provision has featured in the objectives of nearly all of million people--IEG's estimate for the entire population them. of the 3,000 participating municipalities--might have Only 27 percent of the 190 MDPs in the portfolio have had benefited. project objectives focused on assisting the poor or have The Bank has supported MDPs in all six operational indicated how the poor might benefit from stronger regions. The largest number has been in Africa (27 percent municipal management. Earlier IEG evaluations of urban of the total), and the largest lending commitment has been lending found twice that share. The lack of MDP poverty in East Asia (38 percent of the total). Seventy-four percent focus is a serious shortcoming, especially given the poverty of the 114 completed MDPs obtained satisfactory emphasis in the Bank's urban strategy and new estimates outcomes using IEG criteria, compared with 77 percent for putting the number of poor people in cities at 746 million. all Bank operations. The strongest regional MDP performers have been Latin America and East Asia, with In-Depth Findings from Project Assessments 86 and 80 percent satisfactory outcomes respectively. In addition to the broad portfolio review summarized The number of municipal clients assisted by each MDP has above, IEG undertook detailed field-based assessments of varied significantly. "Wholesale MDPs" serving seven or the performance of 24 MDPs. These throw light on both more municipalities occupy the top two quintiles of this successful practices and remaining challenges along the distribution. The average wholesale MDP covers 65 three dimensions of planning, finance, and service delivery. municipalities. Wholesale MDPs have been strong Better Municipal Planning. Though planning is a performers, with 85 percent having satisfactory outcomes. priority under the Bank's urban strategy and a tool widely "Retail MDPs" serving six or fewer municipalities make up used by municipalities for mapping future city the lower three quintiles of the distribution. The average development, it was not a consistent priority in the MDPs retail MDP serves just three municipalities. These MDPs (with 17 of the 24 PPAR MDPs focusing on it). Six of the have been weaker performers, with only 67 percent 24 obtained substantial or better results in enhancing obtaining satisfactory outcomes. municipal information systems, one dimension of planning. Although more analysis is needed, several factors may help A notable success was the establishment and consolidation to explain the stronger performance of wholesale MDPs. of Chile's Web-based National System for Municipal First, wholesale MDPs can spread the downside risk of Information. In contrast, centralized municipal information failure broadly across many municipalities. Second, systems in Sri Lanka and Mozambique failed, in part competition among municipalities, a feature of all the because municipalities themselves had restricted access to wholesale operations reviewed, means both that them. Clearly, municipal involvement in the use of such municipalities that fail to meet MDP performance criteria systems is a factor of success. may no longer be entitled to project support and that weak Monitoring and evaluation is another aspect of planning. municipalities that do not qualify at the outset may become When it worked well, which was rarely--only 4 of the eligible for project funding later if their performance PPAR MDPs had substantial results in this area--it was a improves. Third, the study found that wholesale MDPs hands-on instrument for the day-to-day management of allocate a significantly larger share of project spending to project implementation and for evaluation. The weak technical assistance and institutional development. Fourth, performance of the majority often reflected inadequate it is possible that municipality size is a factor--for example, attention to project results themselves. Even where MDP if wholesale MDPs deal more with smaller, less complex information systems were good--as they were in Chile, municipalities, although this could not be tested given the China, and Indonesia--project M&E in most cases 2 measured only the delivery of project components and not receiving such support in Brazil and Colombia saw their the achievement of an operation's objectives (such as own revenues increase faster than fiscal transfers. reaching the poor in Brazil's MDP in Ceara). M&E Participant municipalities in Georgia saw significant growth generally worked better when using more widely available of own revenues that had fallen for nonparticipants over municipal finance data, as it did in Tunisia and Colombia. A the 2002-05 period, and own revenues of participating very strong M&E system was built into Russia's MDP in municipalities in the Gambia grew 50 percent faster than Kazan, where some M&E performance indicators doubled expected. Weaker results for eight MDPs in Brazil, as tranche release conditions, enhancing the status and Indonesia, Mozambique, and Zimbabwe arose from importance of the M&E itself. Moreover, Kazan political reluctance by some municipalities to raise taxes. municipality saw the usefulness of M&E for its own Improvement of municipal access to credit was an planning, and not just for fulfilling a Bank project infrequent priority, with only six PPAR MDPs focusing on requirement. it at all. Of these, five had substantial efficacy in helping to Relatively few MDPs attempted to strengthen city planning. "bring municipalities to market." MDPs in Colombia were Eight cases yielded substantial results, while two MDPs particularly successful in establishing a local credit market, performed poorly. Among the successes, retail MDPs in complete with recognized credit ratings of active China helped the cities of Ningbo and Tianjin develop city municipalities, some becoming able to issue municipal planning in a way that served as a model for the whole bonds for the first time. Municipalities learned about country. Sri Lanka's MDP enabled the capital Colombo to prudent debt management through wholesale MDPs in update its master plan, as Zimbabwe's did for the small city Brazil, India, and to a lesser degree Georgia. of Victoria Falls. Wholesale MDPs in Chile, Colombia, and Stimulating private finance of municipal services was an Tunisia brought city planning to many smaller objective in only five MDPs, and only one (in Colombia) municipalities for the first time. Weaker results came in yielded substantive results through private funding of Indonesia, where municipalities reacted coolly to the water, gas, and solid waste services in several municipalities. complex model of integrated planning proposed by one Many municipalities lack the expertise to staff the contract MDP and expressed little demand for city planning in management units needed to engage the private sector. The another. Notably absent was the City Development less successful MDPs promoted privatization of solid waste Strategy, an instrument intensely promoted by the Cities operations in Sri Lanka and Uzbekistan that did not go far Alliance yet rarely supported in MDPs. given poor financial performance and uncertain regulatory Municipal (non-spatial) investment strategies made environments. In Zimbabwe, funding of low-income headway in five PPAR MDPs. Projects in Chile, China, municipal housing was not forthcoming from private India, Russia, and Tunisia enabled municipalities to become building societies and their higher-income product lines. more "business friendly," and two MDP clients in China These weak results might have been averted with more rose to the top of a nationwide list of municipalities with accurate assessments of local financial markets and the the best investment climate in the country. demand for municipal services that could ensure the Stronger Municipal Finances. Most PPAR MDPs potential profitability of private funding. addressed the financial dimension of municipal Managing Service Provision. Management of municipal management, in which the study found more good results service provision was a priority in all 24 PPAR MDPs. In than in the planning and service provision dimensions. prioritizing investments in services, however, only 7 MDPs Half of these PPAR MDPs had substantial results in successfully supported the clients' application of cost- financial management. Good results came through project benefit analysis with estimates of economic rates of return technical assistance and on-the-job learning that enabled (ERRs). Simple yet robust estimates of ERR were made for many small municipalities in Chile, Georgia, the Gambia, MDPs in China, Ghana, India, Indonesia, Tanzania, and India, and Tanzania to adopt computerized accounting and Zimbabwe. They included accurate cost figures and realistic financial systems for the first time. Larger municipalities-- assessments of future benefits, often measured by the such as Kazan, Maputo, and Tianjin--unified accounts and increased value of serviced land. Good M&E systems integrated financial management across their large helped produce some of the data needed for ERRs. In all organizations. Among the 4 less successful MDPs, Georgia cases, municipalities themselves were involved in the and Uzbekistan were hindered by weak municipal capacity analyses. Given its successful application in cases such as before the project. these, why were ERR estimates used so little by MDPs? Among the reasons given: high cost, lack of data, and Again, half the PPAR MDPs achieved substantial results in externalities. But simple methods that make full use of enhancing revenue mobilization. These successful MDPs existing data can help overcome these constraints. updated tax records, expanded the coverage of cadastres or land registers, and enhanced collections. Municipalities 3 Nine MDPs led to substantial strengthening of should continue to support the tightening of procurement management at the municipal level, and some municipal financial management, raising of other MDPs dealt with municipalities that were already municipal own revenues, and bringing of familiar with handling their own procurement and needed municipalities to local credit markets when little project support. Where municipalities handled appropriate conditions are present. procurement, local beneficiaries were better informed Project documentation that routinely reports basic about the service improvements provided. Even larger data about each client (municipality name, municipalities, such as Kazan, Tashkent, and Tianjin, were population, and MDP investment) is vital to introduced to more complex procurement packages, developing a better understanding of the scope of including international competitive bidding, by their MDP results. respective MDPs. Wholesale MDPs that have assisted many Few MDPs had substantial results in strengthening the municipalities have yielded better outcomes than municipal management of operations and maintenance retail MDPs over the past decade, but more (O&M), which is necessary to ensure ongoing service analysis is needed to understand the precise provision. The few successful cases were in Africa, where reasons for the performance differential. Retail MDPs helped computerize municipal maintenance in MDPs might perform better if they incorporated Tanzania and establish and fund municipal O&M accounts more of the winning elements of wholesale MDPs, in the Gambia. Other successes were evident in Ghana and such as performance-based incentives and a focus Tunisia. On the other hand, lack of adequate O&M in on finance. MDPs led to service failures in Georgia, Indonesia, and More frequent use of cost-benefit or cost Zimbabwe. These cases show that the risk to development effectiveness analysis would help MDPs' outcomes can increase significantly if O&M is neglected. municipal clients select the best investments and achieve outcomes efficiently. IEG found that only Only MDPs in Brazil, the Gambia, Ghana, and Tanzania half of MDPs do this, with the best coverage in had objectives that explicitly addressed poverty alleviation the Africa Region. or service access by the poor. Visual inspections of these For M&E to succeed in MDPs, it has to be useful projects during field missions confirmed there were poor and not unduly burdensome to municipalities beneficiaries, although there was little data on specific themselves, while keeping a focus on achieving poverty impacts. Evidence elsewhere was even thinner due results, particularly for the poor. Strong M&E can to a lack of poverty focus and monitoring. The Bank still also help reduce the expense of cost-benefit analysis has much work to do to address its poverty reduction by providing some of the data needed to estimate mission through partner municipalities. Being able to define ERRs. Few MDPs have succeeded with this. poverty-related objectives and measure actual results of Private finance of municipal services can be MDPs for the poor would make an important contribution. encouraged through better analysis of local financial Lessons markets and deeper understanding of demand to help municipalities gain the trust of private Several forward-looking lessons arise from the findings of investors. this study that are relevant for future operations and the Thus far, little evidence exists that stronger municipal broader municipal management agenda: management has benefited the poor. MDPs need to Among the three dimensions of municipal give much more attention to poverty reduction in management--planning, finance, and service defining MDP objectives, showing how the poor provision--MDP support for strengthening would benefit from municipal investments and municipal finance most often yielded successful services improved through stronger municipal results according to field assessments. The Bank management. 4 About Fast Track Briefs Fast Track Briefs help inform the World Bank Group (WBG) managers and staff about new evaluation findings and recommendations. The views expressed here are those of IEG and should not be attributed to the WBG or its affiliated organizations. Management's Response to IEG is included in the published IEG report. The findings here do not support any general inferences beyond the scope of the evaluation, including any inferences about the WBG's past, current or prospective overall performance. 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