D. Capacity-building and institutional development

6. Domestic financial resources and economic instruments

187. Funds to finance shelter and settlements development mainly come from domestic sources. Significant additional finance is also available from international sources, increasingly from investment funding. The largest impact on the financial base will derive, therefore, from improvements in economic development, sound financial practice and the capacity to mobilize domestic resources, control expenditures and manage budgets efficiently.

188. Financing the future of urban development and sustaining the economic viability of cities represents a particular challenge, which will require innovative systems of finance at the national and local levels. Effective partnerships between the public and private sectors should be promoted, combining local taxes on production and consumption with fiscal incentives for investment by industry, commerce, trade and other private sector services. New forms of municipal finance are needed to meet the future needs of urban economic development and the costs of supporting infrastructure and services.

189. To strengthen national and local economies and their financial and economic base with a view to addressing the needs of sustainable human settlements, Governments at the appropriate levels, including local authorities, should seek to provide an enabling framework which aims to:

(a) Strengthen, as appropriate, the capacity of local authorities to attract investments;

(b) Adopt macroeconomic policies and frameworks that encourage increased domestic savings and facilitate their use in housing, basic infrastructure and other aspects of the social and economic development of human settlements;

(c) Develop efficient, fair, equitable and buoyant sources of national and local revenue, including taxation, user charges, tariffs and betterment levies, to promote national and local capacity for capital investment in housing, infrastructure and basic services, and devise, as appropriate, new fiscal instruments that penalize environmental damage from both production and consumption activities;

(d) Enhance national and local tax collection capabilities and expenditure control to contain costs and enhance revenues;

(e) Strive for full-cost recovery for urban services, with the exception of public safety services, through user charges, while at the same time addressing the needs of the poor, inter alia, through pricing policies and, where appropriate, transparent subsidies;

(f) Support local efforts to encourage voluntary private and community sector partnerships and participation in the building, operating and maintaining of open green spaces and basic infrastructure and of services that, inter alia, are gender-sensitive, empower women and address the needs of marginalized groups;

(g) Facilitate and rationalize, where appropriate, local authoritiesþ access to national, regional and international capital markets and specialized lending institutions, including, inter alia, through measures to establish independent municipal credit rating and credit systems, bearing in mind the borrowers' capacity to repay the debt in accordance with relevant domestic laws and regulations;

(h) Facilitate the role of local authorities in forming partnerships with the private, voluntary, community and cooperative sectors and institutions for local enterprise development;

(i) Institutionalize budget mechanisms, where appropriate, and accounting to enable local authorities to engage in medium- and long-term investment programmes;

(j) Establish transparent systems and procedures to ensure financial accountability;

(k) Institutionalize, where appropriate, transparent intergovernmental transfer mechanisms that are timely, predictable and performance- and need-based;

(l) Attract private and community investment to urban development.