Performance-Based Fiscal Transfers for Urban Local Governments

eng

Performance-Based Fiscal Transfers for Urban Local Governments

Results and Lessons from Two Decades of World Bank Financing

Hyunji Lee

Washington, D.C

The World Bank

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The ability of cities and municipalities to effectively deliver infrastructure and services and productively manage built environments and local economies depends on their institutional capabilities, quality of local governance, and financial resources at their disposal. Therefore, a core priority of governments is to strengthen the financial and institutional systems for cities and municipalities to enable them to perform these functions. One tool the World Bank has used to address this challenge over the past two decades is performance-based fiscal transfers to urban local governments - a type of financing mechanism designed to improve institutional and service delivery performance of these local governments. Generally known as 'Urban Performance Grants', these are fiscal transfers from a higher level of government conditioned on achieving performance in predetermined areas. The Bank's Global Practice for Urban, Disaster Risk Management, Resilience and Land has implemented a large financing portfolio of such programs across several countries. This report takes stock of the results and implementation experience of these programs and identifies key lessons and good practices for the design of the next generation of such programs. Based on a review of nine financing programs across seven countries, it shows that they have generally been effective in delivering results in line with their development objectives and have improved the delivery of urban infrastructure and service delivery in their targeted areas. The report concludes by providing guidance on improving the sustainability of these programs within country systems and promoting local action for climate change mitigation and adaptation