First G20 meeting of the Infra Working Group discusses city finances

PUNE, Maharashtra: The first G20 Infrastructure Working Group meeting under the G20 India Presidency came to an end on January 17 in Pune, according to a press release from the Ministry of Finance.

The two-day meeting, which was inaugurated in Pune, covered a variety of topics, including its main theme, ‘Financing Cities of Tomorrow- Inclusive, Resilient and Sustainable.’ 64 delegates from 18 member nations, 8 guest countries, and 8 international organisations were present during the meeting. Under the Indian G20 Presidency, the 2023 Infrastructure Agenda was also debated at the G20 IWG.

According to Ministry of External Affairs Statement, this meeting is hosted by the Department of Economic Affairs and the Ministry of Finance, along with Australia and Brazil as the co-chairs.

The press release said that, “The meeting included discussions on various facets of making cities economic centres of growth, financing urban infrastructure, building future-ready urban infrastructure, the role of cities in meeting sustainability targets, directing fiscal investments for unlocking private financing for energy-efficient and environmentally sustainable infrastructure and mitigating social imbalances.” It also added that “On the side-lines, the Pune meeting was also complemented by a High-Level Workshop on Financing of Cities of Tomorrow wherein over 15 international experts discussed the issues related to financing of the cities.”

Solomon Arokiaraj, Joint Secretary, Department of Economic Affairs, Ministry of Finance, said while briefing the media on the two-day conclave, “There are five major areas on which we are working on (through the deliberations). The first one is how we make cities sustainable. Second and third were about making them resilient and inclusive. The fourth one was about financing needs of cities.”

Regarding the funding sources for cities,he said that the funding choices include public, private, and multilateral finance. There are a number of creative financing strategies that are developing, such as land value capture.

When asked if there were any success stories that were mentioned and might be repeated, he used Mexico as an example.The government provided a guarantee when a municipality launched bonds in the North American nation. According to Arokiaraj, the benefit of this strategy is that the municipality can raise money based on the guarantee provided by the Mexican government.The drawback of this strategy is that the municipality might lack fiscal responsibility because, in the end, if they default on their commitments, the government would bear the cost. Therefore, there won’t be any financial discipline in the municipality.

Mexico then developed the municipal finance trust model as a way to avoid this. So instead of the government providing a guarantee, they created a trust which enters the guarantee and the tripartite relationship between the trust, the municipal body, and the bank works. It turned into a very successful model and small, medium, and all kinds of towns were able to use and leverage this mechanism to raise bonds and they say it is a very good method of doing things.

When asked what the main issues were for all the cities in the world,the senior official responded that the growing speed of urbanisation and climate change were two issues that came up. The reduction of carbon emissions and the transition to net-zero were important topics of discussion.

The Infrastructure Working Group’s second meeting is slated to take place on March 28 and 29, 2023, in Vishakhapatnam, Andhra Pradesh.