24 August 2016
The New Urban Agenda: Opportunities and Challenges for Financing Sustainable Cities
UN Photo/Kibae Park
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It has been 40 years since the global community first addressed the cities agenda, at the UN Conference on Human Settlements (Habitat I), but the need for strategic thinking and planning for cities is as strong as ever.

It has been 40 years since the global community first addressed the cities agenda, at the UN Conference on Human Settlements (Habitat I), but the need for strategic thinking and planning for cities is as strong as ever. In 2016, nearly one billion people live in informal settlements and the infrastructure gap is widening, particularly in developing and least developed countries, due to years of global underinvestment, for example, in the power, water and sanitation sectors. Climate change will only aggravate this gloomy scenario. In this context, effective ways to finance the development of rapidly growing cities becomes imperative for the transformation of urban areas into resilient and sustainable living spaces.

At the upcoming UN Conference on Housing and Sustainable Urban Development (Habitat III), which is scheduled to take place during October 2016 in Quito, Ecuador, countries are expected to endorse a roadmap for the sustainable development of urban areas. The meeting presents an opportunity for the global community to revitalize the role of cities in promoting sustainable development, especially in the context of the recently agreed 2030 Agenda for Sustainable Development.

The impact of the Habitat III outcome document, which is titled ‘New Urban Agenda,’ could extend beyond the corridors of the UN and into the lives of city dwellers around the globe, through its focus on issues such as education, transport, energy, and waste. Delegates are in the final stage of negotiations on the document, as they seek to provide guidance for sustainable cities in the coming decades.

The question of how the agenda could be financed is one of the most vital and difficult topics under discussion. For example, a major challenge for the New Urban Agenda is to ensure local and regional governments have the resources they need to achieve national and international policy priorities, as they are on the front lines for implementation. Providing adequate finance for achieving Sustainable Development Goal (SDG) 11, on Sustainable Cities and Human Settlements, could stimulate progress on several other SDGs and their targets. This policy update discusses some of the bottlenecks in this debate and presents some of the recommendations that could enhance the capacity of local and regional governments to implement the New Urban Agenda and, consequently, the SDGs.

The Global Task Force (GTF) of Local and Regional Governments, which was created to represent subnational authorities during the Third International Conference on Financing for Development, has advocated for decentralization in implementing the New Urban Agenda. With respect to finance, they have argued through their advocacy networks that the most effective way to implement sustainable development policies is to give subnational authorities space to raise and manage funds concomitant with the growing list of responsibilities that are devolved to them. Others are concerned about instances where fragile human and technical resources, weak institutional capacity, and incompatible legal frameworks at the national level will affect the ability of decentralized authority to deliver.

The responsibilities of local and regional governments vary across the world. In some countries it is not feasible to channel funding to subnational authorities, while in other countries the national government can provide transfers to improve infrastructure. Experience with public-private partnerships (PPPs) has provided examples where raising funds for local implementation can help to empower local actors and ensure long-term benefits. However, a study from the United Nations Department of Economic and Social Affairs (DESA), titled ‘Public-Private Partnerships and the 2030 Agenda for Sustainable Development: Fit for purpose?,’ suggests that PPPs are often better suited for economic infrastructure (i.e. transportation and electricity), areas in which it is easier to measure impact on service quality and where costs can drop as quality improves. Efforts to deliver social sector objectives, on the other hand, are not as suited for PPPs. Equity concerns may not be appropriately addressed through PPPs involving schools and hospitals, for example. In addition, some developing countries have warned that PPPs risk becoming vehicles for donor countries’ own investment promotion agendas when local authorities are not empowered with sufficient argumentation power and capacity to follow-up on the various projects and contracts.

The GTF has highlighted that local and regional governments are the closest level of government to the citizens. In the right enabling environments, these governmental levels could be considered the most appropriate actors to manage financing that is targeting urban sustainable development. To facilitate this task, the GTF has put forth specific recommendations for national governments. First, they urge creating suitable regulatory and legal environments and ensuring equitable sharing of national resources. In this regard, dialogue between levels of governments must be strengthened with better transparency and accountability as well as reliable local finance data. Second, the GTF urges increasing technical assistance and capacity building plus strengthening local governments’ endogenous financing systems to give them access to the instruments that enable them to raise long-term financing. In addition, one of the GTF’s key proposals for the New Urban Agenda is to create a “Global Fund for Basic Services” that would make guaranteed access to and public governance of essential services such as water and sanitation a long term objective.

Implementing the GTF’s recommendations could be challenging in several cities given the often poor environment for investors. With low levels of transparency in many countries, potential investors may fear commercial disputes that cannot be arbitrated given the absence of sound regulatory frameworks. Once again, the DESA study suggests that improving regulatory frameworks requires the creation of legislation to enhance stability for borrowing and lending over time, often through the creation of financial intermediation institutions and pooling of resources —not an easy task. Moreover, developing countries often face challenges stemming from having nascent financial systems, thus making it more difficult to match financial needs with available finance. When these mechanisms are not in place yet, as in many least developed countries, it is necessary to develop, in parallel, appropriate guarantee mechanisms to secure investors and effectively channel global savings towards the local level. Credit rating agencies and investment banks can facilitate these transactions but aren’t present in all cities.

On the road to Habitat III, local and regional governments will make a stop in Bogota, Colombia, to attend the World Congress and World Summit of Local and Regional Leaders, convening from 12-15 October 2016. This summit will help concretize the proposals of local and regional governments for the New Urban Agenda, and is also expected to produce strategies that may assist governments in overcoming financial challenges and stimulate the empowerment of cities. One instrument to be discussed in both Bogota and Quito is the Global Observatory on Local Finances, a tool that aims to stimulate fiscal decentralization while providing transparent financial data on local governments to increase accountability.

Overall, PPPs offer one way to address financing challenges. Municipalities must work on improving their “creditworthiness” and their capacity to choose the best financial instruments for ensuring ensure long-term development. In exchange, the private sector should provide expertise in management, commerce and operations in a more efficient manner. The promotion of financial decentralization will have to take place according each country’s unique context, from large fiscal autonomy to a strong and reliable system of intergovernmental transfers, while also ensuring transparency and accountability.


World Summit of Local and Regional Leaders website: http://www.bogota2016.uclg.org/

PrepCom3 inconclusive: Long road ahead to Habitat III: http://www.iclei.org/details/article/-cb6ace910e.html

Funding Capital-Intensive Urban Projects: Enabling Cities to Employ Municipal Finance Tools (2016): http://unsdsn.org/wp-content/uploads/2016/03/160309-Issue-Brief-Municipal-Finance-UN-SDSN.pdf

Government Objectives: Benefits and Risks of PPPs: http://ppp.worldbank.org/public-private-partnership/overview/ppp-objectives

For Local Financial Resources that meet Development Challenges: http://www.uclg-localfinance.org/sites/default/files/Dipt-finanzas-eng-WEB_1.pdf

Global Observatory on Local Finances: http://www.uclg-localfinance.org/sites/default/files/Carpeta%20Observatorio%20EN.pdf

Public-Private Partnerships and the 2030 Agenda for Sustainable Development: Fit for purpose? (2016): https://sustainabledevelopment.un.org/content/documents/2288desaworkingpaper148.pdf

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