In Tashir, Armenia, the need is clear: the city’s drinking-water system requires rehabilitation. But the route to financing is less straightforward. Before engaging an external funder, the city needs clarity on technical scope, who will operate and maintain the system, national funding availability, and how much of the investment can realistically be supported through public resources. Until those questions are resolved, an investment affecting something as basic as reliable drinking water can remain stuck between local priority and financing.
Secondary cities, like Tashir, often know what they need. Development banks and other financing institutions are looking for projects worth backing. Yet the two still struggle to meet. Funding availability and the shortage of sufficiently prepared projects are part of the problem, but so is a deeper mismatch between how secondary cities develop investments and how development finance reaches them. Closing that gap requires stronger projects and financing approaches that fit the scale, economics and institutional realities of secondary cities.
In practice, innovative city finance is often more about connecting the right actors with suitable funding than inventing a completely new financial instrument.
UNDP’s City Finance Advisory Function (CFAF) works in this space to accelerate city investments. Launched through the European Union-funded Mayors for Economic Growth initiative and the City Experiment Fund, with support from Frankfurt School of Finance & Management and Climate Policy Initiative, it is working with six municipalities in Armenia, Moldova and Ukraine.
There is no single investment-readiness package
One of the clearest lessons from the first cohort is how different municipal investment pipelines can look. Some projects arrived with studies, indicative cost or a reasonably clear national funding route. Others addressed equally important priorities but still needed to establish what to build, who would operate it, how much it might cost and what kind of funding could realistically support it.
A water project, transport system and industrial park may all be worthwhile investments but won’t follow the same route to finance. Some may depend primarily on public budgets or grants. Others may be able to bring in development-bank finance earlier. A few may attract commercial financing for particular components.
The practical question becomes: what still needs to happen before financing institutions can engage, and who needs to be involved?
Important financing barriers appear long before a large loan or investment is discussed
Development banks and donors often expect early studies, credible costs and structured project documentation before considering a project. Yet municipalities can struggle to finance or procure those relatively small preparation costs.
Targeted technical assistance and relatively small project-preparation grants can determine whether a much larger financing conversation becomes possible later.
Before financing solar power and battery systems for municipal water pumping stations, Kryvyi Rih, Ukraine, needs to decide which assets to prioritize and why. In Trostyanets, Ukraine, the educational and cultural centre will likely need a combination of public or recovery funding, donor support and potentially separate financing for energy-efficiency measures.
CFAF helps cities strengthen their project pipelines, develop priority investments and engage the right institutions earlier. National authorities and public-finance channels may be the logical starting point, while Trostyanets, for example, may require several different sources of support.
Cities remain central to that process. They need to own the project, validate the underlying information and secure decisions or approvals that only they can provide. External advisers can structure, model and open doors, but they cannot replace municipal ownership, or the institutional support needed to move a project forward.
Source: www.undp.org
