Mobilising adequate financial resources for environmental infrastructure is key to translating major policy objectives into actual environmental improvements. About two decades of neglegting the maintenance of environmental infrastructure in Eatern Europe, Caucasus and Central Asia (EECCA) led to the the accumulation of significant needs of capital investments. Operational revenues of utilities (e.g. user fees) have not been able to contribute much to meeting these needs. Public budgets need to continue to play an important role in financing investments and social safety nets, and in facilitating access to credit.
However, budgets are stretched by necessary fiscal consolidation and will face expenditure constraints for years to come, particularly after the recent financial crisis. Private sector utility operators can contribute to management and operation rather than to equity financing of capital investments.
The Environmental Action Programme (EAP) Task Force explored the opportunities of using local capital and financial markets as a source of long-term debt financing for environmental infrastructure. In addition to local currency credit and bond markets, intergovernmental fiscal transfers have been also studied in both national (from central budgets to local authorities) and cross-country contexts. The analysis has demonstrated that any strategy concerning the development of local capital and financial markets must be compatible with the existing system on which other sources of finance are based, in particular intergovernmental transfers and fiscal autonomy.