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Project Partners
The project was undertaken in partnership with the World Bank Sub-national Development Program (SNDP) and key Hungarian stakeholders such as the Prime Minister’s Office, the Hungarian Urban Association (MUT) and the Budapest University of Economics. Activities were also undertaken in collaboration with other donor agencies active in the region, including the United States Agency for International Development (USAID), the British Know-How Fund and the German Development Agency (GTZ).
Background
Hungary, like many former communist countries in Central and Eastern Europe, was undergoing a challenging transition to democracy and a market-based economy. Municipal governments were assuming a wide range of new functions such as urban planning and development, economic development and environmental management. The decentralization process required ill-equipped local governments to establish efficient and effective municipal management systems.
Local governments in Hungary were facing a situation where they would no longer be able to rely on financial transfers from the State to fund their service delivery responsibilities. Municipalities would have to achieve a significant degree of fiscal autonomy by finding their own sources of revenue and encouraging the participation of the private sector in the delivery of services. Local governments were also required to become credit-worthy in order to gain access to capital markets.
Project Description
With the overall goal being to support the key elements of the Government of Hungary’s fiscal decentralization reforms, the objectives of the project were to support the establishment of: a strong framework for fiscal federalism and sub-national autonomy; an open and diversified municipal credit market; and professional municipal management systems and practices that promote municipal credit-worthiness and private sector participation in municipal infrastructure and service delivery. These objectives were successfully achieved and the national government in Hungary drafted legislation to implement many of the recommendations made by the SNDP program. In addition, local governments in Hungary gained a better understanding of the financial integrity demanded by lending institutions and the training programs developed for the project were included in the curriculum of the Budapest University of Economics.
Approach
The project was implemented using a variety of undertakings, with emphasis on research and capacity building activities such as training workshops and study tours. Research was carried out by both Hungarian and Canadian experts, on issues such as the sub-national debt market, property taxation and service delivery. A city management assistance program, which consisted of a series of study tours and workshops on decentralization issues, was also undertaken. This training program aimed to increase municipal management capacity in Hungary and was designed based on the results of the CUI and SNDP research. Training focused on providing the skills needed to implement property tax reform and enhance municipal credit-worthiness.
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