Finance for city

The health of the financial sector is a matter of policy concern, most especially in developing countries where failure in financial intermediation can critically disrupt the development process. The link between the financial sector and growth has been the subject of a large literature, most recently reviewed by Khan and Senhadji, who concludes that while there is strong empirical evidence that robust financial markets support economic growth, there is very little work of operational relevance for improving the functioning of the financial sector. However, cities are places of incremental decision-making involving complex negotiations that produce accumulations of urban assets and path dependency. How can cities get the money? Indeed, many tools exist to help cities improve their financial situations. The first steps for many cities are to promote basic financial management, including administration of local and endogenous revenues, and to match proper planning for a better urban future with the required budgets and business plans. Local governments must find ways to link revenue generation with their ongoing activities and with urban growth for local finances to be sustainable in the long term. Central governments can support capacity building in this area, as well as create supportive regulatory frameworks and national-level institutions. Once essential financial management has begun to be addressed, opportunities for borrowing to support much-needed public investments become available. These opportunities come in a variety of forms, including municipal bonds, commercial bank loans, and loans from national and regional development banks. Cities, with the assistance of national governments should match borrowing instruments to their capacity to service debt, ability to bear risk, and capital investment needs. In addition to traditional financing instruments, there is a range of innovative financing options that has been increasingly tested in middle-income countries. These include green bonds, inter-municipal coordination for pooled financing, and land-based financing instruments.

References

[1]. M. S. Khan and A. Senhadji. Inflation, financial deepening and economic growth. In Banco de Mexico Conference on Macroeconomic Stability, Financial Markets and Economic Development. November, volume 1213, 2002

[2]. Alexander, J., Nassiry, D., Barnard, S., Lindfield, M., Teipelke, R., & Wilder, M. (2019). Financing the sustainable urban future: Scoping a green cities development bank. Overseas Development Institute.

[3]. Lusardi, A., & Mitchell, O. S. (2014). The economic importance of financial literacy: Theory and evidence. Journal of economic literature, 52(1), 5–44.

[4]. Poon, M., & Olen, H. (2015). Does literacy improve finance?. Public Understanding of Science, 24(3), 272–284.