3.4. Conclusion: Moving Towards the ‘New Normal’

One of the likely causes of larger cities being more susceptible to the pandemic at the initial stages is their greater connectedness innovation. The process produces a virtuous circle where innovation gives birth to more industries and sectors.

In developing countries, the combination of slums, informality and overcrowding is an enormous constraint. With recovery from the pandemic and productivity at the centre, urban economic principles must be adapted to developing countries by integrating the informal settlements into the formal economy and by providing their communities with adequate housing and basic services.

No city has escaped the chaos and disruption of the pandemic, and in most countries the road to recovery looks uncertain. The costs of multiple lockdowns, the associated loss of employment as a result of restrictions and the heavy toll of the virus on already overburdened health systems have brought to light the underlying pressures and inequalities of the global economy. In these circumstances, there have been increasing calls for a fundamental restructuring of the current system, in response to the profound changes COVID-19 has

Figure 3.8: A new financing model for cities

wrought. This has inspired calls for ambitious “moonshot”64 programmes, built on value creation and sustainability, to address both the aftershocks of the pandemic and the deeper dysfunctions of the current economic mode.

To achieve this, a more sustainable financing model that grants cities fiscal resilience is needed. These improvements rely on changing the financing model for cities from today’s system, based largely on intergovernmental transfers, to a model of increased own-source revenues, better access to financial markets and less restrictive conditionalities attached to central government transfers. Furthermore, the pandemic has highlighted the need for subnational governments to have “rainy day funds” – earmarked funds for crisis times – to increase their economic resilience.

Another critical area for a successful urban structural transformation is increased private investments into cities. Urban areas, because of their productive economies, potential returns on investment and high economies of scale, are theoretically well placed to attract significant investment. Although the use of such marketbased financing mechanisms is growing, they are still limited and confined mainly to prosperous municipalities in advanced economies. Legal

Source: Authors

External financing

Own source revenue

Intergovernmental transfers

New financing model for cities

Intergovernmental transfers

External financing (Credit worthiness, green bonds, social impact mechanisms)

Own source revenue ( Land value finance, local assets, public entities, etc)