2.7 Planned postponements of capital investments in an emergency

FIGURE 2.7

Planned postponements of capital investments in an emergency

Percent of surveyed cities/regions

Yes, we had to stop or cancel key capital investments that were happening or scheduled to happen, 31%

No, key capital investments were not considerably affected by this emergency, 38%

Yes, briefly, but these investments are now underway, or we are confident they will resume very shortly, 31%

Source: EGI 2021, 4. © The Emergency Governance Initiative by Metropolis, United Cities and Local Governments and LSE Cities at the London School of Economics. Used with the permission of the consortium. Metropolis Secretariat General, Avinyó, 15. 08002 Barcelona, Spain; further permission required for reuse.

levels of government (OECD 2020b). Many countries, and the European Union, have reallocated public funding to crisis priorities, supporting health care, small and medium enterprises, vulnerable populations, and regions particularly hit by the crisis. And “financing constraints and competing spending priorities to save lives and livelihoods have caused many middle- and—especially—low-income countries to put domestically financed investment projects on hold”(IMF 2020, 1). The noted scissors effect on subnational public finances—that is, an increase in expenditures and a decline in revenue—could lead to increased deficits and accumulation of short- and long-term debt. This may lead to the need for fiscal consolidation plans in the medium term, as happened after 2010, leading to potential cuts in public investment and undermining recovery.

An Organisation for Economic Co-operation and Development (OECD) study put the impact assessment into a comprehensive picture (figure 2.8) of assets, liabilities, revenues, and expenditures that is conceptually universal but relevant more for developed countries (OECD 2020b). Let us see the situation of cities in developing countries that face somewhat different structures and status of assets, liabilities, revenues, and expenditures. They may have less capacity to align revenues and expenditures or mobilize extra resources for postpandemic development.

Assets and liabilities In developing countries, cities have negligible volumes of liquid financial assets; they have negligible amounts of deposits or financial reserves and financial investments. Many do have shares in local public companies, but most of these shares are not tradeable and generate no dividend—instead cities