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Empowering Cities to Implement the 2030 Agenda and New Urban Agenda: Mobilizing Municipal Finance for Sustainable Infrastructure in -Pacific

Building Urban Infrastructure: New Approaches to PPP and Municipal Finance Innovations in South Asia 15-16 November 2018 Pravasi-Bhartiya Kendra, Chanakya Puri, 120° 135° 150° 165° 180° 165° 150° 135° ECONOMIC AND SOCIAL COMMISSION Anchorage 60° FOR ASIA AND THE PACIFIC R U S S I A N UNITED STATES FEDERATION Bering Sea OF AMERICA Sea of Okhotsk Moscow ds Astana Sakhalin Islan Aleutian . Is l ri GE u OR Caspian K 45° G 45° I Vladivostok Black Sea A Sea Almaty UZBE Hokkaido Istanbul T'bilisi KI Sapporo ST • Regional development arm of the UN A URK N DEM. PEOPLE'S T MEN P'yongyang A IST REP. OF KOREA Honshu R A N M E - AN Jammu Incheon NI ST A NI and A - u REP. OF Chiba NORTH PACIFIC OCEAN Mediterranean H Kashmir d Osaka ISLAMIC REPUBLIC n G a KOREA Sea d Shikoku OF F - hu A N a m p Wuhan • 53 member States, 9 associate members, b th Shanghai Kyushu P A - m 30 a a i 30 ° e T h ° r S - m K East . s I la T Is ia K s n A I New Delhi China u G P y H ul Karachi k aw f G u aii u LAO Sea y an R lf o Guangzhou R Is from Turkey to Tonga e f la P.D.R. d n d S s M , China e a Northern a ca o, China Mariana Mumbai Naypyitaw Vientiane Philippine Hyderabad Luzon Islands South China Sea Saipan 15° 15° Bay of A VIET NAM Hagåtña • Headquartered in Bangkok, 4 subregional ESCAP HQ DI BO Sea Guam Arabian Sea Bengal AM MARSHALL C nh Pe Colombo m Mindanao Koror ISLANDS Sri Jayewardenepura Kotte Phno Palikir PALAU Majuro Northern Line offices: Almaty, New Delhi, Incheon, Suva DARUSSALAM Male Celebes FEDERATED STATES Islands S Sea OF MICRONESIA u Tarawa m Gilbert Is. KIRIBATI Equator 0° Members: a 0° te Sulawesi NAURU Yaren Nauru r Phoenix Is. a PAPUA Southern Line Nepal NEW GUINEA SOLOMON Islands Netherlands TUVALU • ESCAP fosters sustainable development in Surabaya ISLANDS Marquesas French Azerbaijan New Zealand Bogor Port Moresby Funafuti Tokelau Is. Bangladesh Java TIMOR- Arafura Sea Honiara Polynesia Is. LESTE American Bhutan SAMOA Tu Palau Apia Samoa amo Brunei Darussalam C o r a l S e a Pago Pago tu A line with the 2030 Agenda: Papua New Guinea rc 15° hi 15° Philippines pe Port-Vila FIJI Papeete la China g Republic of Korea VANUATU Niue o Suva Alofi So Democratic People's Republic of Korea Russian Federation ci New Avarua ety Federated States of Micronesia Samoa Nuku'alofa Is. Caledonia Tu • Intergovernmental platforms, policy Fiji Singapore Nouméa TONGA C bu o a o i Is Solomon Islands AUSTRALIA k I . Pitcairn sla Sri Lanka nds India dialogue, regional cooperation 30° Tajikistan 30° Indonesia Thailand Perth Islamic Republic of Iran Timor-Leste Sydney SOUTH PACIFIC OCEAN Japan Tonga Canberra Auckland Kazakhstan Turkey Melbourne T a s m a n S e a • Research & analysis, peer learning, Kiribati North Island Kyrgyzstan Tuvalu NEW ZEALAND 's Democratic Republic Tasmania Wellington Malaysia United States of America ESCAP Headquarters, Regional or sub-regional offices knowledge sharing 45° Maldives 45° Marshall Islands Vanuatu South Island Mongolia Viet Nam Myanmar The boundaries and names shown and the designations used Associate members: on this map do not imply official endorsement or acceptance • Results oriented projects, technical by the United Nations. American Samoa Guam 0 1000 2000 3000 km Commonwealth of the Hong Kong, China Dotted line represents approximately the Line of Control in Jammu and Kashmir agreed upon by India and Pakistan. Northern Mariana Islands Macao, China The final status of Jammu and Kashmir has not yet been assistance, capacity building Cook Islands New Caledonia agreed upon by the parties. 0 1000 2000 mi 60° French Polynesia Niue 60° 30° 45° 60° 75° 90° 105° 120° 135° 150° 165° 180° 165° 150° 135°

Map No. 3974 Rev. 18 UNITED NATIONS Department of Field Support • Interdisciplinary expertise from sustainable August 2014 Cartographic Section urban development to environmental issues, to energy, science and technology, trade and transport Today’s Presentation

1. The Future of Asia-Pacific Cities Report 2019

2. The infrastructure financing gap in Asia-Pacific

3. Financing instruments which assist in leveraging capital The Future of Asia and Pacific Cities 2019 Report

TheThe FutureState of Asia and Pacific Cities 2019 Urban Opportunities to deliver the 2030 Agenda for Sustainable Development

The Future of Asia and Pacific Cities 2019 Report

• Is engaging a wide range of urban development partners and practitioners and convenes a series of consultations • Will be a policy advocacy Report for national and local governments in the region • Provide a conceptual framework to localize the global agendas in Asia-Pacific cities • Critically assess and provide knowledge and best practices of the means of implementation across a range of urban sustainability areas • Will be launched at, and inform the thematic areas and structure of, the 7th Asia-Pacific Urban Forum during October 2019 The Future of Asia and Pacific Cities 2019 Report Thematic areas 1. The Future of Urban Governance and Capacities for Resilience 2. The Future of Urban Finance 3. The Future of Smart Urban Data and Technologies 4. The Future of Urban/Territorial Planning

Selection of themes was influenced by: • the ESCAP – UN-Habitat Regional Partners Forum held in November 2017 • the Asia-Pacific Regional Report for Habitat III https://www.unescap.org/commission/74/document/E74_12E.pdf Key question

What are the enabling institutional conditions which need to be in place for cities to be able to leverage long term financing for sustainable infrastructure to deliver against global development agendas? 2030 Agenda and Cities

Cities are in a pivotal position for the implementation of Global Development Agendas Empowering Cities to Implement the 2030 Agenda and New Urban Agenda: Mobilising Municipal Finance for Sustainable Infrastructure in Asia-Pacific

What is the infrastructure gap in Asia-Pacific?

What are the key components of a functional municipal financing system?

What are the financial instruments which local governments have at their disposal which can be used to leverage private finance for these investments? The current GAP

Infrastructure Needs and Gaps: Asia Pacific, USD Billion 2015 prices Baseline Estimates Estimated Current Investment (2015) Annual Needs Gap Gap (% of GDP) Total (25) 881 [5.5] 1,211 330 1.7 Total without China (24) 195 [3.8] 457 262 4.3 Selected Low to Lower Middle Income Countries (18) 178 [4.2] 422 244 4.7 without India (17) 60 [2.9] 192 132 5.4

Selected Upper Middle Income Countries (7) 703 [6.0] 789 86 0.6 without China (6) 17 [2.0] 35 18 1.8 Selected Central Asia Countries (3) 6 [2.9] 11 5 2.3 Selected South Asia Countries (8) 134 [4.8] 294 160 4.7

Selected Countries (7) 55 [2.6] 147 92 3.8 Selected Pacific Countries (5) 1 [2.7] 2 1 6.2 India 118 [5.4] 230 112 4.1 IndonesiaEstimates within parentheses are number of countries23 and [2.6] those in brackets are70 percentages of GDP47 4.7 ChinaSource: based on ADB, 2017 686 [6.3] 753 68 0.5 Empowering Cities to Implement the 2030 Agenda and New Urban Agenda: Mobilising Municipal Finance for Sustainable Infrastructure in Asia-Pacific

Public and Private Infrastructure Investment, 2010-2014 (% of GDP) Private Public

25 ADB Developing Member Countries 0.4 5.1 East Asia 0 6.3 South Asia 1.8 3 Central and West Asia 0.3 2.6 The Pacific 0.3 2.5 Southeast Asia 0.5 2.1 China, People's Republic of 0 6.3 India 2.1 3.3 Indonesia 0.3 2.3 Source: ADB, 2017 The Future GAP

Total Public sector 54% gap (or infrastructure reforms on both US$141 billion) investment needs tax revenues and remain AP: US$ 22.6 expenditures can specifically for meet 46% of this private sector trillion infrastructure gap (2016 to 2030) finance The Future Gap - sectors

Water and Transport Energy sanitation AP investment needs in AP investment needs power for 2016-2030 AP projected investment 2016-2030 climate needs 2016-2030 climate adjusted estimates at over climate adjusted adjusted estimates at over 8,3 trillion estimates at over 800 billion 14,7 trillion What are the key components of a functional municipal financing system?

Debt financing depends on the rationality of the De-risk investments intergovernmental fiscal rules and fiscal capacities

Policies that empower local governments through Invest in structures to pool rationalizing these demands and lower intergovernmental flows, risks through efficient strengthening own revenues intermediation and financial intermediaries Financing instruments which assist in leveraging capital – Fiscal decentralisation

Fiscal Decentralization Benefits and risks to developing countries

• Design and management of intergovernmental transfers

• Can increase the efficiency of public finances

• Transfers may continue to play an important role in order to supplement local taxation

• Ensure appropriate accountability

• Need to be rational and predictable

• Coordination between national, regional, and local governments is key Financing instruments which assist in leveraging capital – debt financing

Debt Financing Benefits and risks to developing countries

• Creditworthy national governments can collaborate with cities to identify investment priorities

• Secondary markets and instruments reduce the cost of longer-term local currency finance

• Cities need sufficient own-source revenues for making debt repayments, along with capacity for budgetary, accounting, and financial management

• Risk mitigants and credit enhancements Financing instruments which assist in leveraging capital – PPPs

Public–private partnerships Benefits and risks to developing countries

• PPPs can play a role in delivering urban infrastructure projects

• Allocate risks between public and private entities

• Involve commercial returns on revenue-generating assets

• Universe of suitable projects for PPPs is limited principally to those that can generate sufficient income-backed returns

• Effectiveness of PPPs has been mixed Financing instruments which assist in leveraging capital – LVC

Land based financing Benefits and Risks to developing countries • Helps finance large urban transport and development projects

• National governments can incentivise municipalities to assess and implement LVC as a condition of allocating national funds to part-finance infrastructure projects

• National legislation and frameworks are critical enablers for creating the revenue stream

• Higher levels of government often retain the power to set assessment parameters or tax rates which represents a significant risk

• LVC is most risky when combined with an ineffective tax system and opaque property market Financing instruments which assist in leveraging capital

Tamil Nadu, India: Empowering Municipal Decisions

• Linking fiscal transfers to state taxes (rule based rather than on patronage), strengthening own sources (including powers to set rates) and setting up a supply side intermediary

• Demonstrated that domestic private debt can finance municipal infrastructure at low costs

• Market access for small and medium cities, demonstrating the advantages of pooling in overcoming small size of issues Financing instruments which assist in leveraging capital

The Public-Private Partnership Center (PPPC) of the Philippines

• PPPC assists and supports implementing agencies and departments on project preparation

• Establishment of the Project Development and Monitoring Facility (PDMF) in 2010

• By end 2016, PDMF had committed a total of nearly US$56 million

• More than US$4.3 billion of private investment has been secured Financing instruments which assist in leveraging capital

Land Based Financing in the Republic of Korea Land and Housing Corporation (KLHC) • KLHC financed new transport infrastructure, suburban railways and expressways

• Companies bought some of the newly developed land for housing

• Users also benefited from appreciated values

• From 2001 to 2008, 38 land development projects were built - the average land value capture per project was around US$559 billion (21.5%) of the average US$2.6 billion project cost - total land value captured reached nearly US$2.8 trillion In conclusion

Combining the above instruments with enhancing the powers of cities to improve their own revenue sources, rationalize intergovernmental transfers and provide the regulations for a borrowing framework capitalizing on the benefits and reducing the risks in an integrated fashion can attract long-term capital

These policy measures lie under government control or influence and have supporting evidence of previous effectiveness What do you think?

How can we support a more enabling environment for cities to be able to leverage long term financing for sustainable infrastructure?