Ahead of the upcoming LDC5 conference in 5-9 March 2023 in Doha, Qatar, this policy paper aims to highlight the importance of recognizing and elevating the role of local government finance in
achieving global commitments outlined in the Doha Programme of Action (DPoA).

Globally, we are living at a time of great economic, social and geopolitical uncertainty. The Least Developed Countries (LDCs) have been dealt a particularly bad hand and need to accelerate three transitions in this uncertain time: 1) urban transition from rural to sustainable urban spaces; 2) green transition from unsustainable to clean development; and 3) productive transition from low to high productivity level. These are more urgently needed at the city and local government levels given they are closest to citizens and deliver immediate and visible impact on their lives. At the local level, the COVID-19 pandemic also reversed progress made in these transitions as the associated fiscal impact has been asymmetric for cities and local government.

Aligned with the three transitions, a number of international and regional strategies set targets related to the sustainable LDC graduation, and one such upcoming conference is the LDC5. This is the second part of the DPoA conference, bringing together world leaders, governments, civil society, private sector, and youth representatives to build plans and partnerships to deliver on the Sustainable Development Goals (SDGs) by 2030. It is a once every ten-year conference to raise support and action on the priorities of the world’s LDCs.

The paper argues that the current global financial ecosystem is not working for sub-national governments, and therefore, it puts forward a Malaga policy agenda as a conceptual framework on how LDC leaders and their development partners can advance a global financial ecosystem that indeed works for cities and local governments. The Malaga agenda includes five building blocks: intergovernmental fiscal transfers, own-source revenues, domestic capital markets, city-friendly investment funds, and global guarantees. These policies
increase the capacity of sub-national governments by equipping them with the necessary financial and technical support to realize their full potential in providing sustainable public services and infrastructures. To further strengthen the case, the report showcases practical examples and solutions based on the evidence from UNCDF’s pilot initiatives and programming in LDCs, including Uganda, Tanzania, Senegal, and Bhutan, and in non-LDCs to share replicable lessons for the LDCs. It also draws from the UNCDF’s recent flagship publication – Local Government Finance is Development Finance, and the 2022 edition of the World Observatory on Subnational Government Finance and Investment (SNG-WOFI), featuring dedicated research of 31 LDCs. The paper ends with policy recommendations to specifically reference the role of local governments in the DPoA commitments and their associated technical and financial support in alignment with the Malaga agenda.

Through this paper, UNCDF, as the UN’s sub-national finance hub, calls government leaders, development finance institutions, and other UN agencies for urgent action to leverage the outlined policies as a guiding framework to further strengthen and advocate for the role of local government finance in ensuring sustainable and irreversible LDC graduation.