Description
This refers to the allocation of funds from national or state budgets to support the development of a smart city project and is the most frequently used funding model for smart city projects in ASEAN.
Enabling Conditions and Key Considerations
- Robust and transparent public financial management and infrastructure governance systems. A robust public financial management system that demonstrates transparency and accountability in budget formulation, planning, and projects, amongst other areas, is critical to enhancing the efficiency and integrity of public spending and investment. IMF research reveals that an average country loses up to 30% of the value of its public investment through inefficiencies in its public investment processes and that almost half of these losses can be made up for through stronger infrastructure governance.
Potential Challenges
- Smart city projects are not always aligned with national priorities. Smart city projects often do not get the funding they need in specific application areas, as these may not align with current national or state budget priorities. For instance, a particular smart city project may require focused investment in healthcare, but national government priorities for the budget cycle may choose to focus on broader infrastructure demands across the country (e.g., transport infrastructure), making it difficult for the city to secure funding for healthcare projects. Securing funding for smart city projects is likely to be even more challenging for cities where there is no national policy for smart cities and, therefore, no national mandate to allocate funds from the national budget for smart city projects.
- There are limited funds but competing priorities for resources. The quantum of funding available may be insufficient for smart city project needs, particularly when governments have other pressing infrastructural needs to fund.
- Complex or restrictive budgeting processes could delay funding. The budget approval process could be long and complex and require consensus from multiple government agencies at the national and municipal levels. This can result in project commencement delays and delayed payments to contractors and employees. Additionally, national governments may include caveats in funding agreements that impose restrictions on the disbursed budget when there are deviations from the original approved plans (e.g., adding new scope or changing technology), leading to delays in fund disbursement or high levels of inflexibility in project execution.
- Lack of project planning and management capacity in the public sector. Smart city projects can be complex and cut across different agencies or sectors, requiring public officials to have robust technical, legal, and financial skills to plan and manage them. Poorly designed and managed projects could lead to cost overruns or failure to deliver.
Potential Benefits
- A straightforward channel of obtaining required funding. If national finances are available and can be tapped without significant bureaucratic hurdles, this could be a rapid and simplified method of supporting smart city projects.
Sources/Additional Information
- ADB (2023). Reinvigorating financing approaches for sustainable and resilient infrastructure in ASEAN + 3. Available at: https://www.adb.org/sites/default/files/publication/879411/financing-sustainable-resilient-infrastructure-asean3.pdf
- IMF Blog (2020). How strong infrastructure governance can end waste in public investment. Available at: https://blogs.imf.org/2020/09/03/how-strong-infrastructure-governance-can-end-waste-in-public-investment/
- World Bank (2020). Infrastructure Governance. Available at: https://thedocs.worldbank.org/en/doc/96550c14d62154355b6edc367d4d7f33-0080012021/original/Infrastructure-Governance-Assessment-Framework-December-2020.pdf