A pilot World Bank program to help states and municipalities get funding in their own right is to be dramatically increased in size.
The program exists because of the number of local governments and communities in emerging markets that are responsible for providing water, power, transport and other infrastructure, but are unable to raise funds to pay for it. Since 2003 the World Bank has put in $260 million in investments into municipalities in South Africa, China, Guatemala and elsewhere, and brought in investors alongside it bringing the total to $800 million. Under approvals announced yesterday, the World Bank will invest $800 million and aim to bring in a further $4.2 billion from other investors.
“We’re aiming to use our money to kick-start local capital markets,” said Declan Duff, vice president of International Finance Corporation. “We’re trying to get local investors to finance local governments investing in local projects.”
Apart from funding, Duff said the program would “allow local governments to participate in the decision making… and perhaps most importantly it brings commercial drivers and discipline into this area from the beginning.”
Investments in the pilot project have included Tlalnepantla in Mexico, Guangzhou in China, and Johannesburg in South Africa, where the money went towards urban transport. The bank has in some cases provided technical assistance, in others loans, and in others guarantees to municipalities that lack a sovereign guarantee.
Katherine Sierra, vice president for sustainable development at the World Bank, denied the program would undermine the ability of sovereign entities to borrow if municipal borrowers became more favoured among investors.
“If you look at what the demand for finance for infrastructure is at the local level, it’s been a deliberate choice of many governments to push down responsibility” to local levels, she said. “Borrowing will be in local capital markets so that doesn’t detract from their ability to borrow internationally.”