Publication: Unlocking Subnational Finance: Overcoming Barriers to Finance for Municipalities in Low- and Middle-Income Countries
Loading...
Published
2025-04-22
ISSN
Date
2025-04-22
Author(s)
Editor(s)
Abstract
Municipalities in low- and middle-income countries confront financing needs that greatly exceed available flows. Currently, most investment in municipal infrastructure is financed directly from public fiscal sources, but needs cannot be met by existing public and international development sources alone. Much greater use of private and repayable financing will be required. This report is intended to address this development challenge. It provides a snapshot of repayable finance flows to municipalities in developing countries, showing that such flows have been extremely restricted in recent years. It then identifies the chief factors that contribute to these restricted flows, along three dimensions: municipalities’ effective demand for finance, the supply of finance, and the intermediating regulatory environment. It offers recommendations for municipalities, national governments, and development partners to address these constraints.
Link to Data Set
Citation
“World Bank Group. 2025. Unlocking Subnational Finance: Overcoming Barriers to Finance for Municipalities in Low- and Middle-Income Countries. © World Bank. http://hdl.handle.net/10986/43104 License: CC BY-NC 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Financing Mechanisms for Addressing Remediation of Site Contamination(World Bank, Washington, DC, 2014-10)Industrial and commercial facilities provide great economic benefit to communities throughout the world. Unfortunately, many industries use or have used practices and materials which have proven toxic to the environment and to those who live and work near contaminated sites. The definition and degree of contamination varies at national and regional levels of government, but leaders throughout the world now recognize the hazard that contaminated industrial and service sites present to the wellbeing of their communities and seek innovative ways to finance the remediation of these challenging sites. Industrial contamination can have a severe, direct impact on adjacent communities. The cleanup and redevelopment of a so-called brownfield can improve a community s economy, provide an opportunity for habitat restoration, and create public space. Cleanup and redevelopment of brownfields can be an effective economic development strategy, with benefits seen in two timeframes. First, there is an immediate and one-time capital expenditure for cleanup activities, infrastructure, and construction. The initial investment generates tax revenues, temporary family-wage jobs, and indirect economic benefits within the community. Secondly, there is a long-term economic impact from remediation projects in the form of higher property values, long-term tax revenues, and the attraction of external capital to the community by tenants of the revitalized property. The economic benefit of contaminated site redevelopment is perhaps most clearly illustrated by permanent job creation from the restored properties. The deleterious effects of industrial contamination across all facets of a community typically provide a strong incentive for leaders to seek financing mechanisms that make site remediation possible.Publication Guatemala Economic DNA : Harnessing Growth with a Special Focus on Jobs(Guatemala, 2014-08)This is the first edition of the of the Guatemala Economic DNA (Diagnostic for National Action) with a focus section on job creation. The report highlights the important achievements of Guatemala on the macroeconomic stability front. It also argues that these achievements will need to be secured and makes the case for an increased focus on accelerating economic growth. For example, this edition highlights that in 2013 the country's economic activity expanded by 3.7 percent in 2013, and is projected to grow around 3.6 percent in the near-term, in line with the growth of Central American economies but below the growth rate in emerging markets. Meanwhile, inflation has been managed and the authorities deserve to be recognized for their commitment to maintain macroeconomic stability. Guatemala's economy has recovered at a modest but consistent pace since the global financial crisis of 2008-09. Guatemala's macroeconomic resilience is due to prudent macroeconomic policies and a more diversified economy in comparison to other Central American countries, which has helped cushion the impact of shocks. Accelerating growth can substantially reduce poverty in Guatemala, but this will require improvements in economy-wide productivity. Public investment is essential to achieving Guatemala's development goals, yet it remains tightly constrained by a lack of resources, and the government continues to collect the lowest share of public revenues in the world relative to the size of its economy. This report, underscores the extent to which structural constraints on enterprise development slow hiring rates, discourage technology transfer, and promote informality. Several cross-cutting factors are also closely correlated with job creation in Guatemala, including financial depth, exposure to corruption, and informality. Strengthening the rule of law and streamlining regulatory systems will be essential to facilitating firm growth, fostering greater competitiveness, and boosting the returns to both labor and capital.Publication Housing Finance Across Countries : New Data and Analysis(World Bank, Washington, DC, 2014-01)This paper presents new data on the depth and penetration of mortgage markets across countries. There is a large variation across both dimensions of mortgage market development, across countries, but also -- in terms of depth -- within countries. Mortgage markets seem to develop only at relatively high levels of gross domestic product per capita. Policies associated with financial system development are also associated with mortgage market development, including price stability and the efficiency of contractual and information frameworks. The development of the insurance sector and the stock market, sources of long-term funding, is strongly associated with mortgage market development, while government subsidies and support are not. A benchmarking exercise compares the actual values of mortgage market development to values predicted by structural country factors and shows a large variation across countries and over time in the gap between predicted and actual values, related to specific policies but also mortgage boom and bust cycles.Publication Catastrophe Risk Financing in Developing Countries : Principles for Public Intervention(Washington, DC: World Bank, 2009)Public intervention in catastrophe insurance markets, supported by the donor community and the World Bank, should be country specific. Low-income countries, where the domestic non-life insurance market is undeveloped, should focus in the short term on the development of sovereign catastrophe insurance solutions and the promotion of public goods related to risk market infrastructure. These countries are usually not mature enough for the promotion of catastrophe insurance pools for private homeowners. Middle-income countries, where the domestic non-life insurance market is more developed, should help the private insurance industry offer market-based catastrophe insurance solutions to homeowners and to small and medium enterprises, including the agricultural sector. This book offers a framework, with lessons drawn from recent experience, guiding principles for public intervention and potential roles for donors and International Financial Institutions (IFIs). These lessons are expected to be used in developing affordable, effective and sustainable country-specific catastrophe insurance programs.Publication MIGA Annual Report 2009(Washington, DC: World Bank, 2009)For Multilateral Investment Guarantee Agency (MIGA), the challenge this year has been promoting foreign direct investment (FDI) into developing countries at a time when investment flows are slumping. While many investors shied away from projects because of the difficult investment climate, those who have been doing business recognized the need for the kind of political risk guarantees MIGA provides. This year, MIGA provided $1.4 billion in guarantees for a range of projects, down from the agency's banner year of $2.1 billion in guarantees in 2008. But MIGA also experienced far fewer cancellations of existing coverage this year than in previous years. MIGA is also supporting projects to help the most vulnerable. This year, the agency entered into an innovative contract to facilitate up to $100 million of investments to small and medium-size enterprises in Sub-Saharan Africa, businesses which account for most of the continent's jobs. MIGA has also focused on internal changes. At a time of financial crisis, promoting FDI depends on moving quickly to meet the emerging needs of clients. This will enhance MIGA's operational flexibility and procedural efficiency, and should lead to more business while strengthening MIGA's position as a self-standing enterprise.
Users also downloaded
Showing related downloaded files
Publication Lesotho Economic Update(Washington, DC: World Bank, 2025-04-08)Following a decade of low and unstable growth, Lesotho has a unique opportunity to build a new foundation for robust and inclusive development. As real GDP growth pivoted from a 6.3 percent expansion in 2012 to an 8.2 percent contraction in 2020, per capita income levels declined sharply, and Lesotho’s hopes of improving living standards slipped away. However, the country now has a chance to return to a convergence path, as the second phase of the Lesotho Highlands Water Project (LHWP-II), increased revenue transfers from the Southern African Customs Union (SACU), and the renegotiation of water royalties from South Africa are expected to drive economic activity and provide resources for much-needed social spending and infrastructure investment. Seizing this opportunity will require effective prioritization of policies and investments, sound public financial management, and the restoration of sufficient fiscal buffers (savings) to counter negative shocks. This economic update highlights the critical role of fiscal policy in mitigating macroeconomic volatility and fostering sustainable and inclusive growth. It stresses the need for effective fiscal and public investment management reforms to address Lesotho’s economic challenges and unlock opportunities for development. Aligning fiscal policies with the goal of inclusive growth is essential to ensure that benefits reach all segments of society.Publication Effective Tax Rates, Firm Size and the Global Minimum Tax(Washington, DC: World Bank, 2025-03-25)This paper documents new facts on corporate taxation and the revenue potential of corporate minimum taxes, leveraging firm-level tax returns from 16 countries. First, effective tax rates follow a humped-shaped pattern with firm size: small firms benefit from reduced rates, while large firms take up tax incentives, leaving mid-sized firms with the highest effective rates. On average, the effective tax rate for the largest 1 percent of firms is 2.2 percentage points lower than the average effective tax rate for the top decile of firms. Second, although statutory tax rates are above 15 percent in all sample countries, over a quarter of top firms face an effective rate below 15 percent, challenging the simple tax haven versus non-haven dichotomy. Third, a simple 15 percent domestic minimum tax for the top 1 percent firms could raise corporate taxes by 14 percent on average across countries, absent behavioral responses. In contrast, the global minimum top-up tax would only raise a quarter of this revenue due to its generous deductions and smaller number of firms in scope.Publication Reality Check(Washington, DC: World Bank, 2023-09-19)To address the myriad challenges posed by global climate change, countries at all income levels have put in place a diverse set of policies over the past three decades. Many governments have already made significant progress in their efforts to decarbonize, creating a rich history of implementation experiences that provides important lessons for how to successfully advance climate policy goals in a variety of different economic, cultural, and political contexts. Despite this progress, the transition to a net zero future continues to face significant barriers, including the need for large investment, a lack of institutional capacity, and challenging political economy issues. ‘Reality Check: Lessons from 25 Policies Advancing a Low-Carbon Future’ identifies key policy approaches that countries are taking to decarbonize their economies. The report classifies policies into five categories: 1. Planning for a future with zero net emissions; 2. Getting the pricing and taxes right; 3. Facilitating and triggering transitions in key systems, such as energy and food; 4. Getting the finance flowing, particularly by incentivizing private sector investment; 5. Ensuring a just transition that protects the poor. ‘Reality Check: Lessons from 25 Policies Advancing a Low-Carbon Future’ fills a critical research gap by documenting low-carbon policy trends and providing a series of case studies across sectors and geographies. The 25 case studies furnish country contexts and policy details, examine results and impacts, and outline key takeaways and lessons learned for enabling further ambition in achieving emissions reductions. The report contributes to an evolving analytical agenda on how to reduce carbon emissions while achieving economic development and the strategic transition to a greener, more resilient, and more inclusive future.Publication Fiscal and Distributional Implications of VAT Reforms in Zimbabwe(Washington, DC: World Bank, 2025-03-05)Improving domestic revenue mobilization extremely important for Zimbabwe to create the fiscal space to absorb quasi-fiscal expenditures and support macroeconomic stability. In November 2023, Zimbabwe announced measures to raise additional tax revenue. This included limiting value-added tax (VAT) zero ratings to exports only, and VAT exemptions to a small number of essential items. This paper carries out a VAT tax gap analysis and uses a partial fiscal incidence analysis framework to analyze the welfare and distributional consequences of the reforms. The change announced in the 2024 budget is expected to increase the VAT revenue by 0.88 percent of gross domestic product (GDP). But it also increases the poverty headcount by 1.4 percentage points and inequality by 0.14 points. This pattern is consistent with international evidence. Therefore, any VAT reform must be accompanied by a compensation mechanism with horizontal expansion, i.e., a broader coverage of less well-off households. Focusing only on the current beneficiaries of the cash transfer program is ineffective in restoring the welfare level because of its minimal coverage level of the total population and the poor. This can be done with a fraction of the new VAT collections from the proposed changes. Zimbabwe does not have a unified social registry and a criterion to target the least well-off households. Thus, instituting a compensation mechanism requires significant investments in establishing a nationwide social registry and developing a targeting mechanism to target social cash transfers effectively.Publication South Asia Development Update, April 2025: Taxing Times(Washington, DC: World Bank, 2025-04-23)Growth prospects for South Asia have dimmed. The global economic environment has become more challenging and is a source of heightened downside risks. After a decade of repeated disruptions, South Asia’s buffers to cushion new shocks are slim. Tackling some of its greatest inefficiencies and vulnerabilities could help South Asia navigate this unusually uncertain outlook: unproductive agricultural sectors, dependence on energy imports, pressures from rising global temperatures, and fragile fiscal positions. For most South Asian countries, increased revenue mobilization is a prerequisite for strengthening fiscal positions. Even taking into account the particular challenges of collecting taxes in South Asian economies—such as widespread informal economic activity and large agriculture sectors—South Asian economies face larger tax gaps than the average emerging market and developing economy (EMDE). This suggests the need for improved tax policy and administration. Until fiscal positions have strengthened, the burden of climate adaptation will disproportionately fall on the private sector. If allowed sufficient flexibility, private sector adaptation could offset about one-third of the likely climate damage by 2050. This may, however, require governments to remove obstacles that prevent workers and firms from moving across locations and activities. As growth prospects dim, the challenge grows to create jobs for South Asia’s rapidly expanding working-age population. South Asia’s large diasporas could become a source of strength if their knowledge, networks, and other resources can be better tapped for investment and trade.