Unlocking Subnational Finance: Overcoming Barriers to Commercial Finance for Municipalities in Low and Middle Income Countries

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Municipalities in low- and middle-income countries (L&MICs) confront financing needs that greatly exceed available flows. Investment needs for urban infrastructure in L&MICs amount to approximately 2 to 4 percent of combined L&MIC GDP each year. Current investment flows are only a small fraction of these needs, with the overall financing deficit likely in the range of 1 to 3 percent of GDP.

These needs cannot be met from existing public and international development sources alone. Currently, most investment in municipal infrastructure is financed directly from public fiscal sources. To increase investment flows more in line with needs, much greater use of private and commercial financing will be required.

This new World Bank Group report, Unlocking Subnational Finance: Overcoming Barriers to Commercial Finance for Municipalities in Low and Middle Income Countries, is intended to address this development challenge. It provides a snapshot of the volume of finance flowing 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 such low levels, and offers recommendations for national governments and development partners to address these constraints.