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"We badly need investment," says Junaid Hashmi, Deputy District Officer for finance in the City District Government of Karachi. "Without funds we are unable to provide desired facilities – roads development, highways, bridges, motorways, sewage facilities, and water."

Commonwealth study examines ways of financing infrastructure in cities

8 June 2010

Right environment for private sector participation is crucial to improving existing infrastructure of roads, bridges, sanitation and water supply, says Karachi official

With an estimated population of 20 million, the Pakistani city of Karachi is a major commercial hub in South Asia. It alone accounts for 95 per cent of the country’s foreign trade, and 15 per cent of its GDP.

Yet the city suffers from a chronic lack of basic infrastructure. Half the city’s population live in squatter settlements, there is no mass transit system, only 82 per cent of households have a water supply, while just 40 per cent are connected to the sewage system.

“It’s dire. We badly need investment,” says Junaid Hashmi, Deputy District Officer for finance in the City District Government of Karachi. “Without funds we are unable to provide desired facilities – roads development, highways, bridges, motorways, sewage facilities, and water.

“We have a very considerable shortfall of drinking water,” he continues. “We have been trying to invest in providing drinking water to all our citizens but have failed to do so, so far, because of the shortage of funds.”

Lack of resources

According to Munawwar Alam, local government adviser at the Commonwealth Secretariat, Karachi suffers from a “liquidity gap” when it comes to financing infrastructure projects. Although its economy has grown over the past decade, the city has few resources of its own, he explains.

Municipal Infrastructure Financing

This new study provides public sector policy-makers, senior managers, students and researchers with an array of options for municipal infrastructure financing. It also provides an overview of some the challenges as well as some of the institutional measures city officials might pursue.

'Municipal Infrastructure Financing' is available to purchase from our online bookshop. Click here for more information.

“Local governments all over the world are chronically short of money,” said Dr Alam. “In the case of Karachi, because the city district government is unable to borrow from banks or other lenders, it lacks the money needed to provide urban infrastructure to its citizens.”

Until now, Karachi has been largely reliant on the federal government and international development agencies to finance projects, as private sector involvement has largely been minimal.

This lack of private financing is something the City District Government is hoping to address. Though, as Mr Hashmi admits, they are only just getting used to the idea. “Public private partnerships are a very new concept for us in Pakistan,” says Mr Hashmi. “We are trying to attract private sector organisations who can invest in our projects on mutually beneficial terms.”

Commonwealth study

Hassan Sqaure flyover in Karachi, Pakistan

The case of Karachi is featured – alongside Dhaka in Bangladesh, Dar es Salaam in Tanzania and Kampala in Uganda – in Municipal Infrastructure Financing, a new study published by the Commonwealth Secretariat. Edited by Dr Munawwar Alam, the publication provides an overview of municipal finances and private sector involvement across each of the four cities.

This latest book from the Commonwealth Secretariat’s Local Government Reform Series focuses on the trends and gaps in municipal infrastructure financing and also assesses credit and capital markets in selected Commonwealth countries.

It aims to help policy makers and managers entrusted with the delivery of local government services to explore the issues and alternatives to conventional municipal infrastructure financing through case studies.

Mr Hashmi is confident that Karachi’s future is bright, provided the city can attract the vital funds necessary to improve its infrastructure. “If the city government can get money we can invest,” he says. “We can put Karachi on the world map.”

What are the options for municipal infrastructure financing?

Possible revenue sources for local governments are:

- Local taxes (e.g. property tax)

- Charges for municipal services

- Fees for permits and licences

- Profits from enterprises owned by local governments (e.g. markets)

- Central government revenue sharing

- Intergovernmental grants

- Borrowing (to finance capital expenditure)