The World Bank International Conference on FINANCING MUNICIPALITIES & SUB-NATIONAL GOVERNMENTS

1. The World Bank International Conference onFINANCING MUNICIPALITIES & SUB-NATIONAL GOVERNMENTS The Role of Specialized Local Funds and Financial Intermediaries Washington DC, September 30 and October 1, 2004 Khaled Tarawneh Director of Local Development Department. Ministry of Planning and International Cooperation Jordan

2. Jordan's Spatial Administration System –Governorates Irbid Ajlun Jerash Mafraq Balqa Zarqa Madaba Amman Dead Sea Karak Ma’an Tafieleh Aqaba Gulf of Aqaba on the Red Sea

3. Current Development Management Levels National Level Cabinet Ministries Gov. Institutions Intermediate Level : Regional Units: Governor/Chairman of Councils: 1- (12)Governorates Sectoral Department s Executive Council Consultative Council Provincial Governor/ Chairman of Councils: 2 – Provincial Level (Districts) Sectoral Department s * * Executive Council Consultative Council * * * * local Level: (99) Municipalities Municipal Council Technical Committees Explanation: * Executive and Consultative councils, and administrative units the formation of which is still incomplete at the provincial level even though those formed are not in force as stipulated in the administrative formations by-law No. (47) for 2000.

4. System of Government of Jordan Administration • There are two types of structures in local government systems, one is the representative of the central government i.e. departments of line ministries. The second is the self-government units i.e. municipalities. • Since the centers of the line ministries still having the pivotal role in intergovernmental relations; the current system of Jordan public administration characterized as a form of deconcentration rather than one of developed local self-government.

5. Classification of Municipalities: • The 99 municipalities (excluding the Municipality of Grater Amman), based on their number of population, are grouped into four categories A,B,C and D, as follows:

6. Municipalities by Governorates: * excluding Municipality of Grater Amman

7. Municipalities by Categories: * excluding Municipality of Grater Amman

8. Municipalities by Governorates, Categories and % of Jordan population

9. Municipal Financial Status:

10. Municipal Expenditures:

11. Municipal Revenues: Municipalities have limited independent sources of revenues, most of local revenues are tightly controlled by the center. Therefore, municipalities are facing financial stress which hinders their efforts to meet the basic needs of local citizens.

12. Regional and Municipal Development Project

13. Background of Project: The project stems from the studies carried out by the Government of Jordan as part of the World Bank assistance program “Country’s Assistance Program CAS 2002”. The studies research includes Public Sector Management reform at local governments, the general findings to which this project is dedicated in this sector can be summarized in the following: • Lack of Accountability mechanisms • Lack of data at the municipal level • Local capacity is weak • Absence of a transfer instrument to deal with horizontal imbalance (i.e. on that takes into account the major disparities between municipalities in terms of their ability to raise revenues and their expenditure needs).

14. Lack of commitment to hard-budget constraint manifested by the Cities and Villages Development Bank CVDB financing of operating deficits; extension of grace periods; and forgiveness of interest payments. • Delay in the approval of municipal budgets. • Limited decision-making power attributed to local governments. • Lack of cooperation/association among the small municipalities and insufficient outsourcing to improve efficiency. • Weak coordination and cooperation among different types and levels of government.

15. Need for strengthening of local government budget execution monitoring and developing a system of service delivery performance measurements. • Variation in the distribution and composition of revenues across municipalities. • Ad hoc nature of determination and distribution of intergovernmental transfer pool. • CVDB has no capacity to mobilize long term credit from private sources. • Uniform treatment of municipalities leads to large inefficiencies and inequities.

16. Current expenditure assignment does not conform to general principles. • Lack of revenue autonomy. • Absence of an effective incentive mechanism to encourage revenue effort. • Review of various elements of comprehensive local government laws/rule of law. • Enhance municipalities’ (especially large ones with sufficient and stable resources) ability to access long-term financing.

17. Goal: Improving the public sector management, infrastructure, and service delivery at the local levels with special focus on the underserved economically depressed regions of the country.

18. Objectives : • The project would focus on municipalities as a basic unit for local development by strengthening their capacity to deliver services and infrastructure in a sustainable, transparent, efficient and equitable manner. Specifically, the project would result in: • Increased coverage and quality of municipal service provision, with particular emphasis on addressing deficiencies in under-served areas. • Improved local government access to short- and long-term investment financing and increased central resource transfers, based on a more equitable inter-governmental transfer system, and a wider range of financial products and services offered by CVDB. • Strengthened municipal capacities to manage municipal financial resources and deliver services efficiently, equitably and in a prioritized, planned and participatory manner.

19. Project Components: 1. Municipal Services and Infrastructure Investments 2. Municipal Finance Institutions and Instruments 3. Regional Strategy Development 4. Capacity Building and Project Management

20. 1. Municipal Services and Infrastructure Investments Objective: Improve the provision of municipal infrastructure services through investments in infrastructure and equipment to strengthen service delivery, with a particular focus on under-served/poor areas to be selected on the basis of agreed priority criteria. These criteria will be identified by reviewing the current municipal classification system, which is mainly based on administrative/population considerations, and introducing new physical and socio-economic dimensions.

21. 1. Municipal Services and Infrastructure Investments Through this component, the use of municipal asset management strategies/plans will be introduced, together with methodologies for participatory planning, budgeting and implementation at local level. Whenever feasible, public-private partnerships for the provision of municipal services will be supported, depending on the capacity and readiness of the individual municipalities.

22. 2. Municipal Finance Institutions and Instruments Objective: Increase and improve the availability of and access to equitable inter-governmental transfers and provide for a range of financial products and services through the City and Village Development Bank (CVDB) to support sustainable municipal development. In particular, this component will build on the new classification of municipalities as described under Component 1 and would aim to: • develop new financial products tailored to the diversified needs of municipalities, which will allow them to borrow within clear economic, financial, technical, environmental and social frameworks;

23. 2. Municipal Finance Institutions and Instruments • strengthen the current inter-governmental transfer system in order to enhance equity and efficiency within the circumstances of the new reality of the amalgamated municipal structures, and • support CVDB in fulfilling its mandate through strategy development, realignment of its governance structure, and other measures to ensure it can continue to operate sustainable on a sound financial footing. • Three institutions will play a critical role in achieving the above-stated objectives and targets, namely the Ministry of Municipal Affairs (MOMA), the Ministry of Finance (MOF) and CVDB.

24. 3. Regional Strategy Development • This component would include financing for studies, workshops, preparation of discussion papers and other learning exercises intended to strengthen regional planning and ensure effective linkage and coordination among municipalities in their development planning efforts. • It would support and expand upon ongoing work of the Local Development Department of Ministry of Planning and International Cooperation (MOPIC) and would explore current institutional arrangements, including legal frameworks and regulatory assignments regarding regional planning, and develop options for consideration to realign and improve regional and local government coordination.

25. 3. Regional Strategy Development • It will also explore potential rural-urban linkages with the aim of identifying pilot activities to foster local development, including projects of a small-scale nature that could be scaled-up and supported in a future lending operation. This component would be designed to provide technical assistance primarily to support the strengthening of regional-municipal and urban-rural linkages.

26. 4. Capacity Building and Project Management Objective: Build /strengthen the capacities of key stakeholders that play a critical role in the achievement of the project objectives (Local Governments, MOMA, CVDB) and would support the Project Management Unit. At the municipal level, support could be provided to: - Further strengthen municipal budgeting; Asset management; - Revenue generation; - Human resource capacity development; - Investment project analysis and feasibility study preparation; - Fostering private-public partnerships; - Developing and piloting mechanism for participatory governance; - Integrated spatial and strategic municipal planning; - Data collection and analysis.

27. 4. Capacity Building and Project Management At MOMA, support would be considered to: strengthen sector monitoring through development and expansion of an intergovernmental fiscal database, building on ongoing efforts of Jordanian German Technical Cooperation Project (GTZ) and CVDB, and related systems and capacity development to improve the effectiveness of MOMA operations. This component could also support CVDB through training and capacity building for its staff in line with its new strategy and product lines.

28. Project Funding: • The project is estimated to cost roughly $60 million, depending on technical studies prior to the project. • The breakdown of funding agencies is as follows: • International Bank for Reconstruction and Development (IBRD) $ 35 million. • Agence Française de Développement (AFD) $15 million. • The Government of the Hashemite Kingdom of Jordan $5 million