Local Government Finance, Private Resources, and Local Credit Markets in Asia

The paper describes the state of the local government finance in the following Asian countries:

• India;
• Indonesia;
• Pakistan;
• The Philippines;
• Other countries such as China, Sri Lanka and Thailand.

As per the authors, some of the problems faced by local government finance in the region are:

• Fiscal health deterioration in many countries;
• Mismatch between the delegated responsibilities and the revenue-generating authority;
• Continued heavy reliance on central government transfers;
• Lack of political will to develop an external financing strategy to tap long-term private resources.

The authors suggest setting up of two types of municipal credit markets, in order for local governments to mobilize private savings for long-term infrastructure projects:

• The bank model popular in Western Europe;
• The bond model widely used in North America.

Finally, the paper mentions some of the positive characteristics common for local government finance, in the developing member countries:

• The member country governments show a common inclination for creating innovations that overcome the legal and political obstacles in tapping financial resources for local projects and services;
• They share a common realization that they will be better poised to serve this greater demand for investments and services if they are able to develop vibrant credit markets.