By Christopher Kaczmarski, Local Authority Planning and Finance Expert,National Adaptation Plan-Global Support Programme (NAP-GSP), UNDP Bangkok Regional Hub

1. Bangladesh Municipal Development Fund (BMDF)
Accessing Domestic Market Financing
Christopher Kaczmarski
Local Authority Planning and Finance Expert,
National Adaptation Plan-Global Support Programme (NAP-GSP)
UNDP Bangkok Regional Hub

2. Challenges of urbanization are linked to all major aspects of
development
Energy
Food
Security
Democr
acy &
Human
Rights
Water,
Sanitation
& Hygiene
Climate
Change
Environ
ment
Local Governments are responsible for
provision of basic services and amenities in
urban areas
Lack of access to basic
services leads to the cycle
of poverty
Underservice
Reduced
Economic
Opportunity
Poverty
Resource Gap
Low income
Municipal market finance in the region is best understood in the context of dual
challenge: increased urbanization /underserviced local communiti es and
decreasing trends in overall donor funding
Urbanization Challenges
Majority of investments in Environment, Climate Adaptation Poverty Reduction
and other key SDG drivers are not revenue producing and do require alternative
approaches to access private sector finance

3. Bangladesh in Asia
Population: 150 million (2015)
with 322 Municipalities
Urban pop.: 2015-34% (50 million)
Source: Census report published by the Bureau of
Statistics

4. Municipal Finance Initiative – Bangladesh
Rationale for the Initiative
 Current Bank Lending to the municipal sector is negligible.
Supply Side
Sectors 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Share
I. Public Sector 68,864 74,631 66,869 64,793 84,670 98,788 119,215 4%
Government 3,246 3,390 3,696 3,997 4,990 2,174 3,360 0%
Autonomous and semi-auto bodies 2,144 756 4,896 792 17,033 21,239 11,132 0%
Financial institutions 33 24 174 4 171 4 - 0%
Non-financial public enterprises 62,982 69,569 57,303 59,410 61,899 75,270 104,650 3%
(a) Nationalized sector corporations 61,685 68,629 56,365 58,620 61,899 74,823 104,051 3%
(b) Others n.e.c. 1,297 940 938 790 500 447 598 0%
(Error) - - - - (500) 0%
Local bodies 457 323 183 155 128 100 73 0%
Others 2 570 617 435 - 0 - 0%
(Error) - - - - 450 - - 0%
II. Private Sector 1,048,458 1,217,022 1,398,864 1,750,732 2,005,816 2,475,647 3,093,633 96%
Grand Total million BDT 1,117,322 1,291,653 1,465,733 1,815,526 2,090,486 2,574,435 3,212,849 100%
Grand Total million US$ $ 13,967 $ 16,146 $ 18,322 $ 22,694 $ 26,131 $ 32,180 $ 40,161

5. Bangladesh credit gap
The Daily Star, July 17, 2013 (Bangladesh Bank Figures)

6. Principle of Private Sector Co-financing
of Municipal Capital Investment Plans
P
ADP
100%
CENTRAL GOVERNMENT
Central Gov.
Allocation
CIP
125%
25%
LOCAL GOVERNMENT
Local Econ
Dev.
Market Co-
Finance [25%]
ECO Invest.
Off-Set (SDG
support)
Public
Infrastructure
PRIVATE
SECTOR
+
DPs
Grants

7. Municipal Finance Initiative – Bangladesh
Rationale for the Initiative
 There is a strong growing need for local development infrastructure financing in Bangladesh
and this demand is primarily driven by ULBs.
 Within the public sector entities the local governments are best positioned to link with
private sector partners, establish public private partnerships and rich out to effective market
based financing available from domestic investors and private finance institutions
 Effective investment planning, financial management and forecasting tools are of key
importance to ensure required creditworthiness of ULBs and de-risk financing transactions
 An increasing number of municipalities are preparing investment plans. However there is still
a lack of understanding of market-based financing especially with respect to market
finance.
 Due to its established practice and knowledge of the ULBs, the BMDF is the key agency to
provide support in market access for ULBs.
 Capacity is needed in central and local government to help strengthen the demand in the
municipal finance market.
Demand Side

8. Multi – year CIP and Financial Planning as a way of linking
Public Investment Needs with Private Sector Finance
 The M-Y Financial Planning methodology for the purposes of debt incurring should be defined
as rules of assessment of financial standing of the City budget in order to estimate the
funds available for financing PROJECTS which are of non-current character. According to
such definition the methodology should separate the current budget and budget for municipal
projects.
Main Question to M-Y Financial Plan
 Does the City have enough resources for their own investment and soft projects?
 To what extent, the City will be able to use external sources of funding?
 To what extent the assumption of new obligations will affect the financial position of the
City in the subsequent years, and its ability to complete projects in the following
years?
 What are the consequences of implementing projects, especially investment projects
in the next year current budgets and to what extent they limit the funds available
for new projects?

9. 9
Optimal Scenario
Reasons for long-term debt utilization
• Future generations that benefit from will also pay for investments
• Capital spending does not affect current budget
• Effective cost savings from filling-in investments gap now and “paying for later”
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
5 000
'000BGL
Кумулирани парични средства 531 55 266 1 976 124 138 138 139 126 125 164 245 243 267
Заеми 0 0 0 0 1 000 1 000 1 000 0 0 0 0 0 0 0
Капиталови приходи 1 809 752 2 146 972 401 423 459 514 259 255 252 250 249 249
Налични средства 842 785 2 348 982 2 653 2 666 2 707 2 759 2 811 2 861 2 914 2 970 3 024 3 085
Капиталови разходи 3 126 1 326 2 785 3 806 3 999 3 930 3 635 2 456 2 050 2 155 2 502 2 950 3 249 3 249
Обслужване на дълга 0 0 0 0 40 160 530 830 1 020 923 583 273 0 0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Nessebar

10. 10
„No change ”
scenario
0
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
5 000
'000BGL
Кумулирани парични средства 531 55 266 1 976 124 179 376 114 256 301 303 310 319 372
Заеми 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Капиталови приходи 1 809 752 2 146 972 401 423 459 514 259 255 252 250 249 249
Налични средства 842 785 2 348 982 53 -26 -86 -116 -154 -197 -243 -291 -347 -401
Капиталови разходи 3 126 1 326 2 785 3 806 399 200 635 256 60 55 2 -50 -151 -151
Обслужване на дълга 0 0 0 0 0 0 0 0 0 0 0 0 0 0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
14.2%
32.4%
3.9% 3.6%
0
2 000 000
4 000 000
6 000 000
8 000 000
10 000 000
12 000 000
2001 2002 2003 2004
0%
10%
20%
30%
40%
ОБЩО ТЕКУЩИ РАЗХОДИ номинално изменение
NessebarCASE STUDY

11. Introducing BMDF
 A Govt. owned company
 Established: 1999
 Registered: 2002 under the Companies Act, 1994
 Administrative Ministry: The Ministry of Finance
 Objective: Planned Urban Development
 Governed by: A eleven member Board of Directors
 Working partners : Municipalities & City Corporations (ULBs) of Bangladesh
 Project implementing authority : ULB

12. Historical data assessment - CHITTAGONG
CURRENT BUDGET 2011-12 2012-13 2013-14
I TOTAL CURRENT REVENUES (A+B+C) 3 453 200 000 5 058 507 000
A Own revenues 3 377 000 000 4 942 007 000
A1 Taxes 2 681 900 000 4 005 357 000
A2 Fees 252 150 000 263 150 000
A3 Lease / Rent 302 700 000 506 500 000
A4 Other 140 250 000 167 000 000
B TRANSFERS 76 200 000 116 500 000
II TOTAL CURRENT EXPENDITURES 2 386 345 000 3 204 675 000
1 Salaries and additional salary-related payments 1 143 930 000 1 498 750 000
2 Purchase of Services 418 640 000 486 125 000
3 Repair and maintnance 201 500 000 339 500 000
4 Transfers and social maintenance 32 050 000 59 100 000
5 Land development tax 18 500 000 26 500 000
6 Others 571 725 000 794 700 000
III CURRENT BUDGET BALANCE (I-II) 1 066 855 000 1 853 832 000

13. CURRENT BUDGET 2010-2011 2011-2012 2012-2013
I TOTAL CURRENT REVENUES (A+B+C) 338 305 350 381 489 800 447 610 870
A Own revenues 326 660 550 347 714 300 429 235 870
A1 Taxes and rates 218 146 400 249 160 200 283 497 900
A2 Fees 32 209 300 26 210 900 28 100 800
A3 Lease 15 640 500 12 277 200 16 937 170
A4 Other 60 664 350 60 066 000 100 700 000
B TRANSFERS 11 644 800 33 775 500 18 375 000
II TOTAL CURRENT EXPENDITURES 308 807 000 322 727 000 303 956 014
1 Salaries and additional salary-related payments 196 720 000 210 276 000 216 464 000
2 Purchase of Services 67 217 000 71 096 000 47 761 500
3 Repair and maintnance 7 220 000 9 185 000 12 445 000
4 Transfers and social maintenance 23 770 000 21 035 000 16 181 514
5 Land development tax 1 000 000 2 500 000 500 000
6 Others 12 880 000 8 635 000 10 604 000
III CURRENT BUDGET BALANCE (I-II) 29 498 350 58 762 800 143 654 856
Historical data assessment - KHULNA

14. Historical data assessment - NARAYANGONJ
CURRENT BUDGET 2011-12 2012-13 2013-14
I TOTAL CURRENT REVENUES (A+B+C) 279 685 202 352 638 715 421 679 600
A Own revenues 273 185 202 345 638 715 414 679 600
A1 Taxes 195 488 951 246 888 500 324 919 600
A2 Fees 7 549 126 7 960 225 9 565 000
A3 Lease / Rent 54 674 013 48 189 990 52 595 000
A4 Other 15 473 112 42 600 000 27 600 000
B TRANSFERS 6 500 000 7 000 000 7 000 000
II TOTAL CURRENT EXPENDITURES 74 596 510 99 335 000 199 415 000
1 Salaries and additional salary-related payments 55 814 060 76 423 000 117 820 000
2 Purchase of Services 8 433 114 13 802 000 49 745 000
3 Repair and maintnance 853 529 900 000 6 050 000
4 Transfers and social maintenance 1 087 299 1 710 000 16 200 000
5 Land development tax 526 903 500 000 400 000
6 Others 7 881 605 6 000 000 9 200 000
III CURRENT BUDGET BALANCE (I-II) 205 088 692 253 303 715 222 264 600

15. Historical data assessment - NARAYANGONJ
CAPITAL BUDGET 2011-12 2012-13 2013-14
CURRENT BUDGET
I Total current revenues 279 685 202 352 638 715 421 679 600
II Total current expenditures 74 596 510 99 335 000 199 415 000
III CURRENT BUDGET BALANCE (I-II) 205 088 692 253 303 715 222 264 600
CAPITAL BUDGET
IV Current budget balance 205 088 692 253 303 715 222 264 600
V Revenues from sale of City's assets 40 382 809 52 500 000 72 500 000
VI AVAILABLE FUNDS (IV+V) 245 471 501 305 803 715 294 764 600
VII DEBT SERVICE 0 2 902 622 2 647 381
VIII
AVAILABLE FUNDS AFTER DEBT
SERVICE (VI-VII)
245 471 501 302 901 093 292 117 219
IX CAPITAL EXPENDITURES 431 822 855 1 049 737 582 4 040 424 550
X CASH DEFICIT(XII-XIII) -186 351 354 -746 836 489 -3 748 307 331
XI
SOURCES OF BALANCING OF THE
CASH DEFICIT
335 743 008 620 747 436 3 573 926 000
Loans 0 17 095 197 0
Bonds 0 0 0
Annual Deveopment Fund 335 743 008 603 652 239 3 573 926 000
XII ANNUAL NET CASH FLOW (XIV+XV) 149 391 654 -126 089 053 -174 381 331
XIII CUMULATED CASH FLOW 333 914 305 207 825 252 33 443 921
Cash as of previous year end 184 522 651

16. Graphic Presentation of Financial Prognosis
NARAYANGONJ
0
500
1,000
1,500
2,000
2,500
3,000
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Fund Available Subsidy for capex Loans Cumulated cash from previous year Debt Service Capital Expenditures

17. Graphic Presentation of Financial Prognosis
NARAYANGONJ
0
500
1,000
1,500
2,000
2,500
3,000
2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21 2021-22 2022-23 2023-24
Fund Available Subsidy for capex Loans Cumulated cash from previous year Debt Service Capital Expenditures

18. Examples Safe Levels of Debt - Ratios
Ratio Optimal Risky Unacceptable
Debt service / Total revenues Below 10% 10% - 15% Above 15%
Debt outstanding / Total revenues Below 30% 30% – 60% Above 60%
Available funds / Debt service Above 2,0 2,0-1,5 Below 1,5
Debt service / Operating Surplus Below 0,5 0,5 – 0,8 Above 0,8
Available funds / Total revenues Above 15% 15% - 12% Below 12%

19. NAP country-level training
07.09.2017
FINANCING INSTRUMENTS
 GRANTS
– Performance based grants,
– Top-up grants grants,
– Budget subsidies/incentives
 DEBT FINANCING
– Long-term market loans
– Lines of credit
– Concessional loans/blended finance
 ACCESSING LOCAL CAPITAL MARKETS
– General obligation bonds
– Revenue bonds
– Equity investments