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Innovations to Finance a Sustainable Urban Future

Credit Ratings

One approach is to support cities’ work to improve their credit ratings so they can access financing. Many municipal governments in the developing world cannot access capital markets – among the 500 largest cities in developing countries, only a few are considered creditworthy, about 4 percent in international financial markets and 20 percent in local markets.

This is a long-term process, and it begins with the basics. As part of its city creditworthiness program, the World Bank is working at three levels: with cities, to help them improve financial management, debt management, and capital investment planning; with national governments, to help develop policy frameworks, laws and regulations for municipal governance and infrastructure finance to promote the development of financing and climate related projects; and with the private sector to build capacity of finance professionals and other technical experts.

The City Creditworthiness Academy for African Cities, held in Nairobi last year, was a first step. Eighteen cities from 10 countries conducted a self-assessment of their municipal finances as the basis for a multi-year action plan, which will guide technical assistance on revenue and debt management, improved expenditure control and asset maintenance, capital investment planning, as well as planning, structuring, and execution of financing transactions. The next creditworthiness workshop, for Asian cities, will take place in Seoul, April 21-25.

Pooling Financing

Innovative financing mechanisms are also being developed. Green bonds are one growing source of financing for individual projects. Another involves pooling financing.

Although each city is unique, there are also certain common needs that can be better met if resources are put together. To encourage cities to convert street lights to more efficient LEDs, the World Bank is developing a financing mechanism that pools together investment needs of cities that want to finance retrofits, to help them access the market at better terms. This way, the retrofits can be paid for with little or no impact on a city’s cash flow.

The magnitude of the challenge makes it clear that no single entity will be able to finance the world’s urban agenda. It will take the commitment of the global development community as a whole, as well as the involvement of the private sector. 

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