July 2017

1. Subnational Financing in
Support of the SDGs
Mahmoud Mohieldin, Senior Vice President
World Bank Group
July 2017
@wbg2030
worldbank.org/sdgs

2. What is municipal finance?
• Municipal finance is subnational, local, or sub-sovereign finance
• For local authorities, drawing upon all sources of finance implies the
need to more effectively mobilize internal (e.g., local taxes, user fees,
land value capture) and external revenue streams (e.g.,
intergovernmental transfers, donor support), in order to provide public
goods and services and to finance large-scale capital investments.
• A policy framework that realigns local financial flows with local public
goals implies a well-coordinated fiscal, political, and administrative
decentralization effort, where local expenditure responsibilities are
backed by reliable intergovernmental transfers and fiscal empowerment
(e.g., the legal and technical capacity to levy taxes).

3. Why is municipal finance important?
• The state of subnational finance is affected by conditions and developments at the local, national
and global levels.
• Certain megatrends, such as rapid urbanization, changes to the global economic context, climate
change, and natural disasters have particularly strong impacts at the local level.
• Limited subnational financial capacities reduce the ability of local government authorities in to
effectively manage these impacts, as well as to improve local service delivery and finance local
infrastructure development.
• In addition to global megatrends, LDCs are confronted with additional challenges from the national
and local level in most areas of subnational finance. Weak human and institutional capacities, low
per capita income, low productivity, and shallow financial sectors are frequently combined with
political instability and high vulnerability to terms-of-trade shocks due to the reliance on a limited
number of commodities for export.
• At the subnational level, these characteristics may translate into small local revenue bases; limited
financial, expenditure, and asset management capacities; unpredictable and insufficient
intergovernmental transfers; and little to no access to private capital.
• Other political constraints, e.g., insufficient local revenue authority, may pose further challenges
for subnational finance in LDCs.

4. Why is municipal finance important?
Decentralization is often seen as integral to the promotion of sustainable development at
the local level. It is suggested that decentralization increases democratic accountability of
governments while responding to the specific needs of the local population and
strengthens local bureaucracies and administrations in their efforts to provide public
goods and services.

5. Why is municipal finance important?
Urbanization

6. Source: Data calculations from local government statistics6
Many provinces outsize entire countries
Number of provinces with a
population over 5 million, by country
Country Number of provinces
China 30
India 20
Nigeria 12
Indonesia 12
Brazil 12
Egypt 8
Mexico 8
DRC 8
Bangladesh 7
Philippines 5
Myanmar 6
Ethiopia 5
South Africa 5
Russia 4
Iran 3
Kenya 3
Nepal 3
Russia 3
Turkey 2
Colombia 2
Sudan 2
Mozambique 2
Vietnam 2
Korea 2
Malawi 2
86 provinces have a
population of over 10
million
Country Number of provinces
China 27
India 20
Indonesia 5
Brazil 6
Bangladesh 6
Philippines 3
Ethiopia 3
Nigeria 2
S. Africa 1
Egypt 1
Mexico 2
Congo 2
Russia 1
Iran 1
Kenya 1
Turkey 1
78 countries have a
population of under 5
million
181 provinces have a
population of over 5
million
Number of provinces with a
population over 10 million, by country

7. Revenue Sources For Local Governments
TAX
Property,
Motor,
Sales, etc.
TOLLS
Roads,
Bridges, etc.
CHARGES
Bus Stations,
Taxi Parks, etc.
FEES
Licensing,
Facilities,
Fines, etc.
RENT
Land,
Buildings,
Vehicles,
etc.
SURPLUSES
from local
commercial
enterprises
INTEREST
on bank
deposits or
other funds
Source: Municipal Finances Handbook: Managing Local Expenditures, Devas, Munawwar, and Simon8/22/2019 7

8. Revenue Sources For Local Governments
Source: Municipal Finances Handbook: Managing Local Expenditures, Devas, Munawwar, and Simon8/22/2019 8
• Fees for the approval of building plans and erection and re-
erection of buildings
• Fees for fairs, agricultural shows, cattle fairs, industrial
exhibitions, tournaments, and other public events
• Fees for licensing of businesses, professions, and vocations
• Fees for other licenses or permits and penalties or fines for
violations
• Fees for advertisement
• Fees on sales of animals in cattle markets
• Fees for registration and certification of births, marriages, and
deaths
• Fees for education and health facilities established or maintained
by the local government
• Fees for other specific services rendered by the local government
Fees
• Surpluses from local commercial enterprises
Surpluses
• Interest on bank deposits or other funds
Interest
• Property tax (rates) on land and/or buildings
• Tax on the transfer of immovable property
• Tax on motor vehicles
• Local sales tax and/or tax on sale of local products (or surcharge)
• Tax on local businesses and services
• Tax on electricity consumption (surcharge)
• Tax on nonmotorized vehicles
• Tax on tourism, hotels, restaurants, and entertainment
Taxes
• Tolls on roads, bridges, etc. within the limits of the local gov’t
Tolls
• Charges for public works and public utilities such as waste collection,
drainage, sewerage, and water supply
• Charges for markets and rents for market stalls
• Charges for the use of bus stations and taxi parks
Charges
• Rent from land, buildings, equipment, machinery, and vehicles
Rent

9. Source: Municipal Finances Handbook: Managing Local Expenditures, Morrell and Kopanyi
Expenses on Delegated Functions
1.Preschool Education
2.Primary and Secondary School
3.Health Care
4.Social Assistance and Poverty
Alleviation
5.Public Order and Civil Protection
6.Other
Own Expenditures
1.Infrastructure and Public Services
2.Environment Protection, including waste
3.Social, Cultural, Recreational Expenditures
4.Local Economic Development
5.Social Housing
6.Urban Development
7.Civil Security
8.Transfers to Sub-local Government Entities
9.Subsidies, Grants, Equity, In-Kind
10. Loan Repayment
11. Interest Charges
12. Guarantees Called
Sample Expenditure Plan
8/22/2019
9

10. How does fiscal decentralization work?
8/22/2019
10
Decentralization is often seen as integral to the promotion of sustainable development at
the local level. It is suggested that decentralization increases democratic accountability of
governments while responding to the specific needs of the local population and
strengthens local bureaucracies and administrations in their efforts to provide public
goods and services.

11. Challenges to fiscal decentralization
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11
In many cases, decentralization has resulted in increasing
inequality among different local administrative regions. Weak
local institutions with a lack of implementation capacities and
strong political elites are among the factors that have limited
the success of decentralization processes. One significant
impediment is often the power struggle between the central
and local level (see case studies for Busia and Lesotho).

12. Country examples
8/22/2019
12