Asset and debt management for cities

Working paper Cities and Cities that Work

This paper argues and provides examples that municipal assets, debts, and liabilities are fundamental elements of any city management program and strategy.  Consistent and comprehensive analysis is a very important task that city leaders should fulfill. Well managed cities show visible positive results, such as balanced and sustainable development, stable and affordable services, and well controlled finances and debts. Cities can extract substantial revenues from their physical assets, by strategic management of sale, lease, and acquisition of land/properties and using land-value capture instruments; many of these are applicable in the developing world. But, realizing such potential revenues requires adequate administrative framework, realistic medium-term urban planning, and asset management strategy. Debt-financing can expand urban infrastructure, facilitate development and improve inter-generation equity; but cities in developing countries face multiple challenges, including weak fiscal basis, shallow long-term financial/debt markets, low borrowing capacity, and lack of expertise and experience in issuing debt and fulfilling their debt obligations. The most critical steps for cities to be able to tap into diversified borrowing and debt markets include: good understanding of their debt capacity i.e. how much a city can borrow, concerted programs for improving debt capacity (creditworthiness), and exploring conditions and options for loans, bonds, and debt modalities. Asset and liability management is a new approach that helps address assets and liabilities in an interlinked and strategic manner and make city administration and political leaders accountable for the continued improvement of municipal wealth.