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Subnational urban development/planning, subnational financing

The Addis Agenda acknowledges that expenditures and investments in sustainable development are being devolved to the subnational level, which often lacks adequate technical and technological capacity, financing and support. Member States committed to support resilient and environmentally sound urban infrastructure, to support local governments in their efforts.

Participation of local communities

The proportion of countries with high level of users or communities participating in planning programs in water and sanitation management in 2014 has been moderate. Globally, just about one third of countries have high levels of rural and urban participation. Also, high levels of participation are more generally more prevalent in rural than in urban areas. It is noteworthy that the share of rural community participation is comparatively strong in LDCs and LLDCs.

Another option to increase community participation in subnational finance is through participatory budgeting. Participatory budgeting started in Latin America in the late 1980s. Data from a forthcoming publication by UN-DESA and UNCDF on urban finance in LDCs shows that more than 1,500 cities have adapted the tool globally since then. This includes some successful experiments in African LDCs, as well as in Asia and Pacific.

Disaster risk strategies

In 2015, 24 developed economies reported to have implemented national and local disaster risk strategies. Among the developing economies 6 SIDS, 20 LDCs, and 16 LLDCs report to have disaster risk strategies in place. Furthermore, 2 economies in transition are implementing disaster risk strategies.

Subnational revenue mobilization

An initial study by the OECD and United Cities and Local Government (UCLG) on subnational finance shows that in 2013 in a sample of 98 countries, subnational revenues represent 8.6 per cent of GDP and 23.8 per cent of total public revenue, based on unweighted averages. In federal countries, the share of revenue in GDP and public revenue is much higher. The share of income by source varies greatly between countries. Among 90 sampled countries, grants and subsidies account for 52.6 per cent of total subnational revenues, while tax revenue accounted for 31.7 per cent and other sources (social contributions, traffic and user charges, fees for public services) for 15.7 per cent. Sub-national governments in 10 low-income countries studied are more dependent on government transfers and subsidies, at 63.1 per cent of revenue, than high income countries (49.8 per cent). Likewise, the share of tax revenues but also of other revenues in low-income countries accounts for 24 per cent and 13 per cent respectively. In contrast, the share from tax revenues in high income countries is 35 per cent and 16 per cent from other revenues.

Municipal bonds are typically applied in more advanced financial economies with diverse and mature financial sectors. Subnational governments usually access credit markets through bank loans, especially from government-owned financial institutions, and banks, especially national development banks. Only some large cities, if any, have access to capital markets in developing countries. A majority of subnational governments have no access at all to public or private credit – often because of federal law restrictions on local borrowing - and therefore depend on capital grants from the central level for large-scale investments. Research for a joint project by UN-DESA and UNCDF on municipal finance has shown that in the last 2 decades, municipal bonds were only issued in 15 developing countries, out of which all were middle income countries, including 2 LDCs and 1 Small Island Developing State. One transition economy also issued a bond. In many of these developing countries, bond issues led to complications for the relation between national and city governments, which ultimately resulted in the discontinuation of municipal bonds.

Sub-national debt management

An initial study by the OECD and United Cities and Local Government (UCLG) on subnational finance shows that subnational government outstanding gross debt accounted for 9 per cent of GDP and 14 per cent of total public debt in the country sample (59 countries), with a very uneven distribution among the countries. Subnational debt is higher in federal countries (18.1 per cent of GDP and 25.5 per cent of public debt in 2013) than in unitary countries (6.2 per cent of GDP and 10.3 per cent of public debt in 2013). Another finding was that the income level of countries, measured in GDP per capita, is correlated to subnational government debt levels. Subnational debt levels are correlated to the level of decentralization in terms of spending assignments. Also, subnational governments in higher income countries usually have easier access to credit markets.

Official development assistance (ODA) data provided by the OECD Development Assistance Committee (DAC) does not allow comprehensive tracking of flows to subnational governments or the extent of which sectoral allocation benefits the local level. In general, it is established that the majority of ODA is allocated to central governments. The DAC does track data on ODA for some categories that specifically address challenges at the urban level (urban development and management, housing policy and administrative management, low-cost housing). Despite some volatility, total ODA for projects at the urban level, as reported in the OECD Creditor Reporting System, has more than doubled in the last decade, though it decreased significantly from 2014 to 2015 (based on preliminary figures). For these projects 77 per cent of ODA goes to middle-income countries, while least developed countries (LDCs) receive only 23 per cent. Even though the amount for lower-middle income countries increased significantly from since 2002 to an historic height in 2014, the share for LDCs declined especially between 2011 and 2014. In 2015, the share for both LDCs and especially upper middle-income countries increased. Based on the estimate that the proportion of the urban population in LDCs is expected to raise from 31 per cent in 2014 to 49 per cent in 2050, it is unlikely that current ODA allocation levels will suffice to bridge funding gaps and build the required capacities in these countries.

Furthermore, data show that bilateral ODA from DAC countries grew at a relatively small rate and was surpassed in 2014 by non DAC donor contributions, which show a strong increase from 2012 to 2014. However, the preliminary data for 2015 show a decrease in total bi- and multilateral ODA disbursements for urban projects, which is mainly caused by a significant drop in the contributions from non DAC countries. Since total ODA also grew in the last years, the share of commitments for urban projects in total hardly increased and might in fact have fallen in the case of bilateral assistance.

Subnational climate finance

There are no comprehensive estimates available on the amount of climate finance going to subnational levels. Nevertheless, some data can give an initial indication of the available resources. According to the Climate Policy Initiative, mitigation accounted for 93 per cent of total climate finance in 2014, while adaptation measures, which are often critical for cities especially in developing countries, reached only 7 per cent.  A survey of nine development banks showed that about 30.6 per cent ($19 billion) of the surveyed banks’ climate finance in 2014 was allocated to cities. On average, urban climate finance accounted for 8.6 per cent of overall development bank financing commitments. Similar to global climate finance trends, development banks’ urban climate finance also displayed a much higher share (72 per cent) for mitigation measures, especially in energy and transport. The remaining 28 per cent for adaptation measures was mainly spent on water and waste management.

National-level urban policies

National-level urban policies help to link national policies to implementation at the local level. Furthermore, they can enhance inclusive and sustainable urbanization and strengthen economic, social and environmental links between urban, peri-urban and rural areas. In 2015, 142 countries were developing national-level urban policies. 82 countries are already at the stage of implementation, while 23 countries are at the monitoring and evaluation stage. The number is expected to increase in the future based on Member States’ commitment to “effectively implement national urban policies” in the outcome document of the Habitat III Conference, the New Urban Agenda.

National urban policy implementation stage

Policy implementation stage

Number of countries

Feasibility

9

Diagnostic

7

Formulation

21

Implementation

82

Monitoring and evaluation

23

Source: SDG indicators

Member States elaborated further on the implementation of subnational finance and all other aspects of urban development with the adoption of the New Urban Agenda at the Habitat III Conference in Quito (17-20 October 2016). In paragraph 127 of the New Urban Agenda, Member States “reaffirm the commitments on means of implementation included in the 2030 Agenda for Sustainable Development and the Addis Ababa Action Agenda.” Furthermore, “the follow-up and review process of the New Urban Agenda must have effective linkages with the follow-up to and review of the 2030 Agenda for Sustainable Development to ensure coordination and coherence in their coordination coherence in their implementation” (para 164).

Mobilization of resources, partnerships, capacity development, as well as an enabling environment shaped by political and legal frameworks are part of the core means of implementation set out in the New Urban Agenda. The United Nations resolves to implement the New Urban Agenda as a key instrument for national, sub-national and local governments and all relevant stakeholders to achieve sustainable urban development. As part of the follow-up, the General Assembly will request the Secretary-General to report on the progress of the implementation of the New Urban Agenda every four years.