This chapter presents policy recommendations and proposed actions for local, regional and national governments, development agencies and municipal associations on how to enhance the measurable impact of decentralised development co-operation (DDC) on local governance and sustainable development outcomes. They range from promoting a new DDC narrative that better reflects the mutual benefits and value-based foundations of decentralised co-operation and tailoring DDC strategies to territorial and sectoral conditions, to institutionalising DDC within local administrations and building dedicated professional capacity. The recommendations further address how to design longer-term, more flexible and diversified funding arrangements, improve official development assistance reporting, harmonise monitoring and evaluation frameworks, and integrate quantitative data into impact assessment. They also call for a more strategic engagement of private sector actors, civil society organisations, academic institutions and municipal associations as partners in DDC design, implementation and evaluation.
The Impact of Decentralised Development Co‑operation
Abstract
The recommendations detailed in this chapter are grounded in the evidence provided in the analysis, findings and challenges presented throughout the report. They also build and expand on previous OECD guidance on decentralised development co-operation (DDC) presented in various reports since 2018 (Box 6.1) This earlier work provided a range of policy recommendations to unlock the potential of DDC as a tool to implement the United Nations (UN) 2030 Agenda, including for specific regional and national governments such as in Germany. It also shaped a global policy toolkit on DDC, provided overarching guidance for city-to-city partnerships to finance urban development, and proposed a new monitoring and evaluation (M&E) framework jointly developed with the European Commission.
To complement previous policy recommendations, this report draws on the first large-scale qualitative and quantitative assessment of DDC’s impact on local governance and UN Sustainable Development Goal (SDG) outcomes based on 2 OECD surveys on the impact of DDC in more than 180 local and regional governments (LRGs), 16 case studies and regression analysis to better identify the main drivers of impactful DDC. The recommendations that follow are organised around five areas: i) DDC policies and strategies; ii) institutional frameworks and co-ordination mechanisms; iii) financing and funding; iv) measurement, reporting and evaluation; and v) multi-stakeholder engagement across all levels of government (Figure 6.1). At the same time, they address trade-offs that practitioners will encounter in implementation. Calls for greater funding flexibility sit alongside stronger accountability requirements; harmonised monitoring frameworks must be applied in ways that preserve space for place-based tailoring. Against that background, the recommendations offer a set of mutually reinforcing actions to be selected and sequenced according to the strategic priorities and institutional realities of different DDC actors.
Since 2018, the OECD has developed several papers and reports, including a dedicated global policy toolkit and guidance for practitioners with analysis and policy recommendations on DDC:
The report Reshaping Decentralised Development Co-operation: The Key Role of Cities and Regions for the 2030 Agenda (2018) established the first set of OECD recommendations on DDC, which include: moving beyond a top-down donor-recipient model towards a territorial, bottom-up approach grounded in reciprocity and local ownership; recognising the distinctive roles of regions, cities and smaller municipalities; strengthening multi-level governance and co‑ordination including through co-financing mechanisms; and improving official development assistance (ODA) reporting and results-oriented M&E linked to SDG indicators.
The paper “Decentralised development co-operation: A global policy toolkit and guidance for practitioners” (2023), which builds on more than 30 international good practices, organised its recommendations around 3 building blocks: developing common guidance and promoting long-term, place-based programming focused on LRGs’ comparative advantages; strengthening multi-level governance, co-ordinating across levels of government and pooling resources; and improving DDC data, including disaggregated ODA reporting, alongside stronger M&E aligned with the SDGs.
The Reshaping Decentralised Development Co-operation in Germany report (2023) focused its recommendations on the national context in Germany. Its key recommendations included: strengthening the peer-to-peer learning function of DDC and direct co-operation with partner country LRGs; using the SDGs as a framework to define priorities; improving collaboration between German states and municipalities; exploring more flexible co-financing frameworks and simplifying bureaucratic procedures; and developing a harmonised approach to ODA reporting and M&E across states and municipalities.
The report City-to-City Partnerships to Localise the Sustainable Development Goals (2023) centred in particular on DDC M&E with key recommendations to: adopt a harmonised M&E framework aligned with the Group of Twenty (G20) Rome High-Level Principles on City-to-City Partnerships to develop evidence-based territorial policies; expand data collection, including through geospatial sources; strengthen multi-level governance and stakeholder ownership of the M&E process; and improve transparency by making results publicly available to support peer learning.
The paper “Harnessing city-to-city partnerships to finance urban development” (2025) focused on the role of city-to-city partnerships to mobilise financial resources for urban development. In order to do so, it recommends: building local institutional capacity to mobilise resources through peer learning on financial management; fostering enabling legal and financial frameworks, including co-financing and seed funding; supporting pooled projects to achieve greater scale and bankability; and engaging the private sector through blended finance and public-private partnership frameworks, supported by M&E systems and digital platforms that demonstrate impact and attract investment.
Sources: OECD (2018[1]), Reshaping Decentralised Development Co-operation: The Key Role of Cities and Regions for the 2030 Agenda, https://doi.org/10.1787/9789264302914-en; OECD (2023[2]), , “Decentralised development co-operation: A global policy toolkit and guidance for practitioners”, https://doi.org/10.1787/3cb22851-en; OECD (2023[3]), Reshaping Decentralised Development Co-operation in Germany, https://doi.org/10.1787/afedb776-en; OECD (2023[4]), City-to-City Partnerships to Localise the Sustainable Development Goals, https://doi.org/10.1787/d2fe7530-en; OECD (2025[5]), “Harnessing city-to-city partnerships to finance urban development”, https://doi.org/10.1787/d782d57d-en.
Promote a renewed DDC narrative centred on impact and mutual benefits
Challenge
At a time when multilateralism is under pressure, LRGs are demonstrating that development co‑operation is essential with DDC ODA doubling over the past decade and evidence of positive impacts on local governance and SDG outcomes. Yet existing narratives often omit to communicate or misrepresent the key role of LRGs as development co-operation actors, the benefits and impact of DDC on LRGs both in OECD Development Assistance Committee (DAC) member and partner countries, the value-based foundations of DDC rooted in democracy, human rights, equality, non-discrimination and a culture of peace, and its contribution to addressing global challenges and achieving the SDGs.
Recommendation
Promote a renewed narrative for DDC centred on impact and mutual benefits. Position DDC as a strategic response to today’s development challenges by highlighting the distinctive role of LRGs in advancing sustainable development. This narrative should reflect the full spectrum of DDC engagement (encompassing both financial and non-financial support such as knowledge sharing, peer learning and technical expertise) and its contribution to addressing shared global challenges, from climate change and widening inequalities to growing threats to democracy, human rights and social cohesion as well as the potential new role of territorial cooperation in addressing humanitarian aid and emergency crises. It should emphasise the political role of city diplomacy,1 and communicate clearly that place-based, people-centred international co-operation is not a secondary activity but a necessary condition for achieving the SDGs.
Actions
Use the new DDC narrative to shape DDC programmes and actions, funding decisions and political engagement (e.g. by including local leaders in national political delegations where appropriate), ensuring that the mutual benefits, values, evidence and global challenges framing the narrative are reflected in how partnerships are structured, funded and evaluated.
Proactively disseminate DDC results to citizens, local politicians and stakeholders, through channels tailored to their audiences (e.g. short notes with non-technical language), including public hearings, local sustainability days, social media and peer-learning platforms, and place particular emphasis on the mutual benefits and value of non-financial DDC activities such as peer learning and technical exchange.
Consolidate and build on existing networks and communities of practice, including the multi-stakeholder Community of Practice on DDC under the Seville Platform for Action, rather than creating new structures, to share evidence, consolidate lessons learned and influence global development processes, including financing for development and the post-2030 Agenda.
Leverage the mutual benefits of DDC
Challenge
While DDC is primarily designed to support partner territories, evidence shows that it also generates benefits for LRGs in DAC countries, notably through new knowledge and innovation, stronger multi-level co-ordination and more inclusive governance, including through participatory processes that strengthen public ownership of local development agendas. DDC can also contribute to the strengthening of global public goods, including democratic values, human rights and peace. However, in a context of growing public scrutiny and demands for LRGs to justify their DDC activities and their return on investment, these benefits are not always sufficiently documented and communicated in ways that build public understanding and support.
Recommendation
Leverage DDC more systematically to generate mutual benefits in both partner and DAC countries. DDC actors should systematically capture and communicate how partnerships create value for their own cities, regions and countries, as well as for their partner territories, and design activities accordingly. By making these benefits more visible and tangible, governments can strengthen public support, enhance stakeholder buy-in and ensure the long-term impact of their DDC activities.
Actions
Integrate mutual benefits objectives into DDC funding programmes set up by national governments and development co‑operation agencies. National governments in collaboration with their development co‑operation agencies could also develop guidance and tools to help LRGs measure and apply the local benefits of their international partnerships, including for gender equality, minorities and vulnerable populations, such as indigenous communities and people with disabilities.
Systematically document the positive impacts for both partners to the extent that capacity allows, combining quantitative evidence with case studies and practical examples that illustrate how DDC supports SDG outcomes, governance improvements, innovation and learning. LRGs should also adopt a more deliberate approach to applying this knowledge within their own administrations, for example by integrating lessons learned into sectoral strategies, using DDC to strengthen local SDG implementation and establishing internal mechanisms to share insights across departments and with elected officials.
Translate DDC results into clear and relatable narratives for citizens and local stakeholders. By doing so, governments across all levels should highlight concrete benefits for local administrations, communities and service delivery, and disseminate them through channels tailored to their audiences, including citizen information events, public hearings, local sustainability days, websites, social media, policy dialogues and peer-learning platforms.
Elevate the strategic recognition of non-financial DDC
Challenge
The benefits of non-financial DDC are substantial on both sides: LRGs in DAC countries report gains in knowledge and innovation, institutional capacity and more inclusive governance, while partner cities and regions highlight improvements in service delivery, institutional capacity and access to finance for sustainable urban development. Non-financial DDC is also often the primary tool through which partnerships contribute to democratic governance, human rights and the strengthening of civil society. Despite this, non-financial activities remain largely invisible in ODA reporting frameworks, which focus primarily on financial flows, and are rarely treated as a strategic and deliberate modality within local development and international co-operation strategies.
Recommendation
Reinforce the strategic acknowledgement and integration of non-financial DDC into sustainable development and international co-operation strategies. Cities, regions, their associations and national governments should explicitly recognise non-financial forms of DDC as a core and strategic modality of development co-operation, fully integrate them into local development and SDG localisation strategies, and leverage their demonstrated impact to strengthen policy frameworks and reporting systems to maximise their long-term impacts.
Actions
Explicitly recognise non-financial forms of DDC in national and local development co-operation frameworks, such as peer-to-peer learning, staff exchanges, training, study visits and technical assistance, as a core and strategic modality of DDC. This recognition should frame non-financial DDC as a form of co-operation that generates value on both sides of the partnership, strengthens local governance practices, stakeholder engagement and policy innovation, and supports institutional capacity, democratic governance and human rights in both partner and DAC territories. DDC delivers the strongest results when embedded in a territorial approach that ensures coherence and alignment with the development priorities and processes of partner territories, if possible, which is why continuous dialogue involving LRGs, municipal associations, civil society organisations (CSOs) and national governments is needed to share lessons and engage relevant DDC actors.
Move towards a more intentional and strategic approach to non-financial DDC by defining clear objectives for mutual learning, institutional innovation, human rights and contributions to SDG outcomes on both sides of partnerships. National governments and LRGs should embed these activities into broader development strategies such as SDG localisation and international co‑operation plans. To make this operational within existing capacity constraints, municipalities could further explore on how to integrate non-financial DDC into existing planning and management processes rather than running parallel structures, for example by linking activities to ongoing sectoral priorities and assigning clear focal points within departments.
Document and communicate the results of non-financial DDC activities through storytelling, case studies and presentations among peers, to make their value visible to political leaders, citizens and potential partners and to build sustained political and public commitment to this form of DDC.
Tailor DDC strategies to territorial conditions and sectoral dynamics
Challenge
Qualitative and quantitative analyses show that contextual factors, including national frameworks and local conditions, shape how impacts materialise, reinforcing the need to better align strategies with specific territorial needs and capacities. DDC impacts also vary across policy sectors, with more immediate effects in areas where LRGs have strong competences and expertise such as urban planning, water management, public transport and climate adaptation, while impacts in sectors like health and education tend to emerge more gradually. Without accounting for these territorial and sectoral differences, DDC risks misaligning resources with local realities and generating weaker or less sustained results.
Recommendation
Enhance the place-based approach to DDC programming that accounts for the specific conditions, capacities and development challenges of individual territories as well as the dynamics and expected timelines of different policy sectors. DDC strategies should go beyond broad sectoral or country-level targeting and be grounded in a clearer understanding of local needs, capacities and competencies on both sides of the partnership. Local, regional and national governments that integrate localised approaches to sustainable development in their own territories may be better equipped to apply a similarly systemic and place-based lens in their DDC programmes abroad, strengthening coherence and mutual learning on both sides. This approach also requires clarity on how partnerships are governed, including how objectives are jointly defined, how risks are shared, and how decisions on adapting or continuing activities are taken so both sides of the partnership can shape the direction of their co-operation.
Actions
National, regional and local governments should adapt DDC programmes to territorial characteristics, local expertise and sectoral dynamics, scaling up effective practices in areas where LRGs have relevant prerogatives, such as urban planning, water management, public transport and climate adaptation. Particular attention should be paid to the specific conditions of the most vulnerable partner countries, including least developed countries, those exposed to external shocks, geographically isolated countries, countries without access to financial markets and conflict affected contexts, where partnership models, risk management and timeframes may need to be adapted.
Design national, regional or local DDC programmes that combine financial and non-financial support in a way that reflects both territorial needs and sectoral dynamics. In infrastructure and service delivery, financial investment should be systematically paired with the technical expertise and capacity building needed to operate and sustain what is built. In governance and policy reform, sustained peer learning and institutional support should be prioritised over time, even where capital requirements are more limited. Programmes set up by national or regional governments should assess both dimensions at the design stage, ensuring that neither financial transfers nor capacity building efforts are planned in isolation from one another.
Invest in dedicated partnership facilitation mechanism, including peer-to-peer matchmaking tools through which LRGs can declare their interests, sectoral capacities and development co-operation priorities, enabling the identification of partners in developing countries based on shared place‑based challenges and complementary expertise. Development agencies could provide the role of a third-party facilitator to help ensure that partnerships are grounded in strategic fit.
Align funding cycles and M&E requirements set by national governments with the expected timeframes over which DDC generates impact. In sectors such as health, education and climate action, and in humanitarian and emergency contexts where LRGs are increasingly engaged. Where infrastructure needs may be significant, behavioural change is often gradual and some impacts may take many years to materialise, requiring funding cycles to be longer and evaluation frameworks to incorporate intermediate indicators of progress.
Use DDC as a tool for policy innovation
Challenge
The potential of DDC as a tool for policy experimentation and mutual learning remains underexploited. Case study evidence shows that partnerships between DAC and partner cities and regions can generate solutions that neither partner would have developed alone, with knowledge and innovation flowing in both directions. These positive impacts are often not systematically captured or scaled, however, as DDC activities tend to be framed primarily around development outputs in partner territories rather than around the mutual policy learning and innovation they generate for both sides.
Recommendation
Harness DDC for policy innovation by enabling cities and regions to co-develop, adapt and scale solutions through international partnerships. LRGs, national governments and municipal associations should more systematically integrate innovation and mutual learning objectives into DDC strategies, and establish the funding, documentation and knowledge-sharing mechanisms needed to translate partnership experience into replicable policy solutions on both sides.
Actions
Identify and select specific priority policy areas such as such as urban planning, water management, public transport and climate adaptation and structure partnerships explicitly around co-developing, piloting and refining new policy solutions in those areas. For each of the partnerships, define clear objectives for knowledge exchange at the outset and put in place mechanisms to document and apply lessons within local administrations (e.g. debriefing sessions).
Position DDC explicitly as both a development and a policy innovation instrument in national strategies and co-operation frameworks. This means moving beyond framing DDC primarily around development outputs in partner territories and recognising its contribution to policy learning, institutional innovation and governance improvement on both sides of partnerships, including through synergies with bilateral co-operation and domestic policy agendas. National governments could support this by integrating mutual learning and innovation objectives into calls for proposals and programme design guidelines, and by creating structured opportunities for LRGs to share and apply lessons across partnerships.
Invest in systematically documenting innovative approaches conducted through DDC partnerships at the local and regional levels, combining case studies, storytelling and peer exchange to capture what works, under what conditions and for whom, as well as what has not worked and why, building an evidence base on which forms of decentralised co-operation deliver the strongest development impact, and are most suited to different partnership contexts in order to generate lessons learned for future projects. Municipal associations and city networks could facilitate peer learning among cities working on similar policy challenges, helping to connect municipalities that have developed promising approaches with others that could adapt and apply them in their own context.
Scale up locally developed solutions that have demonstrated impact, by presenting innovative DDC approaches in international fora to raise visibility, attract replication partners and connect successful initiatives to international funding streams. City networks in particular can play a catalytic role by identifying promising local solutions, for example in areas such as local energy systems, waste management or climate adaptation.
Establish coherent national strategies for DDC
Challenge
Despite progress in structuring DDC, the OECD DDC impact survey findings point to room for more coherent and comprehensive national frameworks. Many countries have established some form of institutional framework, particularly in terms of laws, definitions, co‑ordination mechanisms and implementation guidelines, but these frameworks remain uneven in coverage and are not always sufficiently integrated into a clear, overarching strategic vision. Insufficient alignment across levels of government can lead to missed opportunities for synergies, duplication of efforts or inconsistencies between subnational initiatives and national efforts.
Recommendation
Establish coherent national strategies for DDC that provide clarity, legitimacy and multi‑level coherence. Where DDC activities are carried out or hold potential, national governments should steer clear national strategies and through legislation, policy guidance or master plans that define the objectives, scope and principles of DDC while ensuring alignment with broader development priorities and anchor efforts in development effectiveness principles. A structured, multi‑year approach can guide subnational engagement while enabling flexibility for place-based and bottom‑up initiatives. National strategies should enable LRG autonomy to choose partners and co-develop shared values which strengthens partnership continuity even during periods of suspended bilateral relations. Such strategies should also aim to incentivise local engagement and broaden the commitment of local and regional governments to be active in DDC. At the same time, local and regional DDC strategies should be coherent with national ones to avoid a fragmentation and incoherence of activities.
Actions
Develop comprehensive national DDC strategies or frameworks (e.g. master plans, legislation or policy guidelines) that clearly define the scope, objectives and principles of DDC, establish the role of LRGs within national development policy, and provide predictable, multi‑year clarity for subnational engagement. These strategies can identify priority regions, sectors and thematic areas where LRGs can contribute based on their policy prerogatives and expertise.
Strengthen alignment between DDC and national policy cycles by linking DDC frameworks to national/bilateral development strategies, and by ensuring that subnational partnerships complement national efforts.
Reinforce multi-level governance mechanisms to ensure coherence and subsidiarity, including clear allocation of responsibilities and competencies across levels of government, and co‑ordination platforms to facilitate dialogue between national and subnational authorities. A place‑based and bottom‑up approach should be promoted by LRGs through the integration of DDC initiatives into local development plans, systems and stakeholders in partner territories, while encouraging collaboration with local actors to ensure relevance, ownership and sustainability of interventions.
Leverage national associations of municipalities more systematically as strategic intermediaries to enhance the effectiveness and scale of DDC, for example by drawing on them to deliver practices such as guidance, training and matchmaking to their members, thereby playing a supporting role for DDC activities.
Set financial incentives for alignment with national priorities and delivery of results
Challenge
The lack of financial resources emerges as the most significant barrier for DDC to achieve intended governance and SDG outcomes. Short‑term funding arrangements can undermine the sustainability and long‑term impact of DDC, making it difficult to plan, scale or maintain partnerships over time. Where financial incentives exist to promote alignment with national priorities, overly rigid or tightly earmarked funding can reduce LRG flexibility and constrain their capacity to respond to local partner needs. Strong dependence on priority‑driven funding can expose DDC activities to shifts in national agendas, creating uncertainty and affecting continuity.
Recommendation
Use financial incentives to promote alignment with national priorities and strengthen results‑based delivery, while ensuring a balanced and flexible funding mix. Where national public finance and budgetary frameworks allow, governments should design co‑financing and performance‑based mechanisms that encourage LRGs to contribute to strategic national objectives and deliver measurable outcomes. In contexts where such transfers or earmarked incentives are legally or institutionally constrained, governments can pursue alternative approaches such as non‑financial incentives, guidance frameworks or indirect funding channels.
Actions
Where legally and institutionally feasible, national governments should introduce or expand co‑financing mechanisms that reward alignment with strategic thematic or geographic priorities and encourage LRGs to design projects contributing to shared national and international objectives (e.g. SDGs, climate action, gender equality). In contexts where direct financial transfers or earmarked incentives are constrained by public finance or budgetary rules, national governments could use indirect funding channels (e.g. through development agencies or intermediaries) or provide non‑financial incentives, such as accreditation schemes, visibility or preferential access to partnerships and technical support. For detailed discussion, see the section on financing and funding below.
Where possible, incorporate performance‑ and results‑based elements in national DDC funding schemes by linking financial or institutional support to the achievement of measurable development outcomes, and by defining clear indicators, monitoring systems and reporting requirements.
Enhance predictability and continuity of DDC programmes, by supporting multi‑year programming at the national level that reduces exposure to short‑term shifts in national priorities and by encouraging long‑term partnerships and sustained engagement.
Institutionalise local capacity and provide professional career development for subnational co-operation personnel
Challenge
DDC is often not sufficiently institutionalised. As highlighted in Chapter 3, a key constraint is the lack of dedicated DDC personnel, which limits continuity, strategic planning and the ability to manage partnerships effectively over time. DDC activities frequently rely on ad hoc arrangements or individual initiatives, rather than being embedded as a structured municipal function. This weakens institutional memory, reduces coherence across departments and constrains the long‑term sustainability and impact of subnational engagement in development co‑operation.
Recommendation
Institutionalise DDC within local administrations and support the professional career development of subnational co‑operation. National governments and development partners should support the transition from ad hoc, project‑based DDC engagement towards structured, professionalised municipal functions, by strengthening human resources, building institutional capacity and embedding DDC within core public administration systems.
Actions
Provide capacity‑building tools and guidance, including practical toolkits for designing, implementing and evaluating DDC initiatives as well as advisory services or helpdesks for LRGs.
Embed DDC within local institutional frameworks by establishing dedicated units or focal points responsible for international co‑operation in LRGs, and integrate DDC responsibilities across relevant departments (e.g. planning, environment, social services). LRGs should further advance efforts to strengthen institutional memory and continuity by embedding DDC processes, tools and knowledge within administrative systems, as well as documenting and sharing lessons learned from partnerships.
Promote the professional career development of DDC functions by developing national competency frameworks and job profiles for DDC practitioners and by supporting continuous training and skills development (e.g. project management, partnership building, M&E through national development agencies or associations of municipalities where feasible). They can also facilitate participation in peer‑learning networks and communities of practice.
Strengthen LRGs’ capacity to manage risk as part of professionalising DDC functions. This includes national-level guidance, tools and training that help LRGs anticipate and plan for risks linked to different partnership contexts such as political changes in partner countries or implementation delays. Furthermore, this could also involve developing risk-management approaches to mitigate the risks and that are proportionate to the scale of the partnership and the institutional capacity of the LRG involved.
Recognise and celebrate political support and leadership in DDC
Challenge
Limited political support and leadership is considered a significant barrier to effective DDC especially by LRGs in DAC countries. Political engagement in DDC is often uneven and can be vulnerable to electoral cycles, shifting priorities or limited visibility of results. Without sustained political support, DDC risks becoming an unprotected and discretionary activity during budget cycles or changes in political priorities rather than sustained engagement. In addition, the contributions of local and regional leaders to international development are not always sufficiently recognised or visible, which can limit incentives for engagement and reduce the perceived legitimacy of subnational action in global arenas. This can weaken momentum, peer learning and the diffusion of good practices across jurisdictions.
Recommendation
Strengthen political leadership and visibility of DDC by recognising and promoting the role of subnational actors in national and global policy agendas. National governments should actively support and showcase the role of mayors, local councillors and regional leaders in international co‑operation, reinforcing the legitimacy, continuity and ambition of DDC.
Actions
Acknowledge and promote exemplary DDC initiatives by establishing national awards or competitions highlighting innovative and impactful projects. Curating and disseminating best practices and success stories as well as organising public communication campaigns can also enhance visibility of DDC benefits.
Create national platforms to elevate political leadership, facilitate the participation of mayors and regional leaders in national delegations to international fora and support their engagement in global policy dialogues and peer-learning networks. Another possible measure is to promote leadership exchanges and ambassador roles for experienced LRG representatives, e.g. co‑ordinated by national development agencies or associations of LRGs.
Promote longer-term, more flexible and diversified financing arrangements for DDC
Challenge
Short-term, project-based funding cycles and dependence on single funding streams remain structural barriers to effective DDC. DDC impact survey results indicate that a lack of financial resources is the main barrier preventing LRGs from achieving intended local governance and SDG outcomes, with LRGs in DAC countries rating this constraint at 3.5 on a scale of 1 to 5 and their partner LRGs even higher at 4.1. This challenge is compounded by the limited flexibility of existing funding arrangements, which do not always reflect the diversity of partnership models, institutional capacities and local contexts across LRGs.
Recommendation
Promote longer-term, more flexible and diversified financing arrangements for DDC that reflect the diversity of local contexts and partnership models. Move beyond short-term project funding by establishing multi-year financing cycles that allow LRGs to develop sustainable partnerships and invest in institutional capacity. Diversified models drawing on local and regional budgets, national co-financing, international grants and in-kind contributions can enhance resilience at scale. National governments, development agencies and municipal associations could work together to establish more sustainable and adaptable co-financing arrangements that match the varying scales and capacities of LRGs, while remaining anchored in national priorities.
Actions
Establish multi-year funding cycles at the national and subnational levels that allow LRGs to build more sustainable partnerships, invest in institutional capacity and focus on achieving lasting local governance and SDG outcomes rather than short-term outputs. This could also include targeted financial incentives to launch new DDC partnerships, e.g. seed grants or matching funds for first-time or newly forming partnerships and establish pathways for these to transition into more permanent, recurrent funding as partnerships mature and demonstrate results, with particular attention to partnerships in least developed countries and fragile contexts, where financing constraints are most acute.
Diversify co-financing sources by combining local and regional budgets, national co-financing, international grants and in-kind contributions such as technical expertise and staff time to reduce overreliance on national budgets. National development agencies could facilitate access to multilateral and European Union (EU) funding instruments, for example by providing guidance on eligibility criteria and application procedures, offering co-financing to help LRGs meet minimum funding thresholds and supporting municipal associations to act as intermediaries that aggregate applications from smaller municipalities. Furthermore, explore the role of philanthropic actors and, where politically feasible, private sector partners as complementary funding sources, including through peer-to-peer platforms connecting municipalities with philanthropic foundations.
Connect national and subnational DDC funding strategies to international financing frameworks including the EU Global Gateway strategy, in order to access additional financing streams and integrate DDC into broader development finance mechanisms. In doing so, recognise that a systemic territorial approach to DDC contributes directly to building the local enabling environment including fiscal, regulatory and productive capacities that helps de-risk investment and attract longer-term, more stable financing.
Support pooled DDC initiatives and improve access to funding opportunities
Challenge
Many LRGs face significant financial and human resource constraints that limit their ability to engage in DDC independently or to access larger funding programmes. DDC impact survey findings show that LRGs in DAC countries often rely heavily on external funding, with around 24% of respondents contributing between 0% and 10% of their own resources to their overall DDC budget and 56% coming from external sources overall. Smaller municipalities in particular, which concentrate the highest proportion of purely non-financial partnerships, frequently lack the financial or human capacity to engage in DDC projects on their own.
Recommendation
Support pooled DDC initiatives and improve access to funding opportunities, with particular attention to smaller municipalities. National governments, governments at the state or regional level, where applicable, development agencies and municipal associations should support mechanisms that enable LRGs to pool resources, share administrative burdens and navigate a fragmented funding landscape more effectively, including partnerships that strengthen domestic resource mobilisation and crowd in private actors. Pooled funding mechanisms, such as municipal solidarity funds that aggregate contributions from many small local governments, can lower entry barriers and transaction costs.
Actions
Support inter-municipal co-operation frameworks and promote pooled funding mechanisms that can help LRGs overcome the limited scale of individual projects, reduce fragmentation and transaction costs and enable larger and more strategic interventions. Pooled funding arrangements could be jointly established by groups of local and/or regional governments and designed to set out the role that each LRG plays and contributes to the co‑operation mechanism, including through governance structures that support peer learning and capacity development. Furthermore, leverage city networks as potential intermediary platforms for pooled DDC initiatives and connecting potential partners.
Provide technical assistance for project design, joint fund management and access to co-financing schemes through national development agencies or municipal associations by supporting the governance of DDC projects. Such support could be particularly valuable for smaller municipalities that may lack the financial or human capacity to engage in DDC projects on their own, and should include dedicated assistance for navigating EU and multilateral funding programmes.
Strengthen digital DDC knowledge platforms as one-stop shops combining information on national, subnational and international grants, co-financing schemes and technical assistance programmes with practical guidance on application procedures, financial management and project implementation. Such a digital knowledge platform could be set up either at the EU level or by national development agencies and also feature training modules, templates, case studies and replicable good practices. By lowering information barriers and improving municipalities’ capacity to identify suitable support, such tools could help increase the number of LRGs engaged in DDC activities and improve the long-term sustainability of DDC projects.
Build the institutional capacity to make DDC funding effective
Challenge
Capacity constraints are as significant a barrier as funding availability as resources that cannot be effectively managed, deployed or accounted for do not generate impact. DDC impact survey findings show that human resources are the most significant constraint, with only 19% of partnerships reporting adequate staffing on both sides and many municipalities operate without a dedicated DDC or international affairs department, meaning DDC work is carried out on top of regular responsibilities.
Recommendation
Build the institutional capacity that make DDC funding effective, and use DDC to help create the enabling conditions for longer-term investment in partner territories. National governments, development agencies and municipal associations could work together to strengthen staffing and administrative capacity on both sides of DDC partnerships, and support partner territories in developing the institutional and governance conditions that attract sustained investment.
Actions
Invest in institutional capacity on both sides of DDC projects through dedicated staffing support, peer-to-peer learning and shared administrative services for fund management, reporting and project governance. Interim funding provided by the national government or development agency to retain key personnel between project cycles can help LRGs maintain continuity and avoid losing staff and expertise, and municipal associations could offer pooled support that smaller municipalities can draw on rather than building these functions individually.
Leverage DDC projects dedicated to financial capacity building. DDC projects focused on improving tax administration, revenue collection and expenditure management can help DDC partners use financial resources more efficiently. National governments, development agencies and municipal associations should identify, document and disseminate successful examples of DDC contributing to domestic resource mobilisation or to crowding in private capital in partner countries, so that these approaches can be replicated at greater scale. Stronger financial management capacity can in turn also help partner territories develop investment roadmaps and help attract longer-term private and institutional investment alongside public DDC funding.
Improve CRS reporting on DDC ODA
Challenge
DDC ODA reporting in the OECD Creditor Reporting System (CRS) remains partial and insufficiently detailed at the subnational level. Only 15 of the 34 DAC members currently report DDC ODA, and flows are underestimated as many LRGs do not systematically report. Most data are recorded at the country level, with limited information on subnational providers and no systematic reporting on recipient regions or cities, significantly constraining territorial analysis.
Recommendation
Improve the coverage, granularity and consistency of DDC reporting in the OECD CRS, and total official support for sustainable development (TOSSD), including the systematic identification of the cities and regions providing and receiving DDC support. Better CRS reporting would significantly strengthen the evidence base on which territories are engaged in DDC, where DDC ODA is allocated and how these flows contribute to local governance and SDG outcomes. In addition, CRS reporting could include a localisation marker to identify projects with a clear territorial or local development focus. As TOSSD reporting advances under its UN-hosted framework, future analyses should also draw on its broader coverage of providers, non-concessional instruments and expenditures addressing macro-regional and global challenges that generate substantial benefits for developing countries.
Actions
Strengthen national-level DDC ODA reporting by improving co-ordination between national reporting agencies and subnational governments, ensuring that existing information on subnational providers is transmitted to the DAC, and advancing systematic disaggregation of DDC flows by subnational provider and recipient through structured geographic fields, building on existing practices in countries such as Belgium, Germany and Spain.
Raise awareness among LRGs on reporting modalities and develop digital platforms that make reporting simpler and more systematic, including for municipalities with more limited resources. National governments could also provide incentives for more consistent reporting, for example by linking reporting compliance to eligibility for DDC funding programmes or technical support.
Leverage text analysis and artificial intelligence to extract and validate references to recipient cities and regions from project descriptions as a short-term solution while more standardised reporting systems are developed.
Harmonise M&E frameworks for DDC
Challenge
M&E practices in DDC remain uneven and fragmented across partnerships and among partners involved in the same partnership. While more than 60% of LRGs report assessing their DDC activities to some extent, only 17% of partnerships conduct systematic assessments at both ends of the partnership. This limits comparability, mutual learning and the ability to generate robust evidence on DDC contributions to local governance and SDG outcomes. Evidence on DDC impact also remains limited, in part because evaluation is rarely built into project design from the start, making it difficult to assess what works, for whom and under what conditions. At the same time, M&E requirements need to remain proportionate and adapted to the scale of DDC projects, so that they strengthen learning and accountability without creating excessive burdens for LRGs.
Recommendation
Promote the adoption of harmonised and proportionate M&E frameworks across and within DDC partnerships to strengthen comparability, mutual learning and evidence-based decision making. Monitoring and evaluation should be treated as a core element of DDC projects from the outset, not only as an ex post exercise, so that partnerships can generate more credible and policy-relevant evidence on their contributions over time. Shared M&E frameworks should combine a common set of core indicators with enough flexibility to reflect local contexts, institutional capacities and partnership priorities.
Actions
National governments should support LRGs by providing adaptable M&E templates and indicator menus, building on tools such as the OECD-European Commission M&E framework for city-to-city partnerships to localise the SDGs, while ensuring that reporting requirements remain proportionate to subnational capacities, particularly for smaller municipalities and partner LRGs with more limited resources.
Implement shared results frameworks for projects carried out within DDC partnerships, where appropriate given the scope and scale of the project. These frameworks should be built around a common set of core indicators linked to the objectives of each project within the partnership (including local governance and SDG indicators where relevant), while allowing flexibility for context-specific metrics. Evaluation should be integrated from the outset, including clear baselines, measurable targets and plans to assess progress and results over time among partners at both ends of the partnership.
Frame M&E in locally defined notions of success by having partner LRGs and their communities co-define a share of the core indicators, drawing on OECD guidance on locally led development. Complement quantitative indicators with qualitative evidence and structured community feedback, and use these inputs for adaptive management, adjusting activities during implementation rather than only reporting on them afterwards (OECD, 2024[6]; OECD, 2026[7]).
Support LRGs in designing evaluations and combining different types of evidence from academia, research and governmental organisations, including quantitative and qualitative data to better understand how and under what conditions DDC partnerships generate impact.
Integrate quantitative data into DDC impact assessment
Challenge
DDC M&E relies predominantly on qualitative and self-reported information. Only around 23% of LRGs in DAC countries and 33% of partner LRGs draw on local or regional databases, while just 9% and 6% respectively use national or international databases. This limits the capacity to track objective outcomes and assess impact comprehensively, with data gaps most pronounced in ODA‑eligible countries.
Recommendation
Strengthen the integration of quantitative data into DDC monitoring and impact assessment, and support the development of subnational indicators to fill existing data gaps on local governance and SDG outcomes. Enhancing the availability and use of quantitative data is critical to enable more robust, comparable and policy-relevant assessments of DDC impact that supports the new DDC narrative around tangible benefits and impacts of DDC in both cities and regions in DAC and partner countries.
Actions
Prioritise increasing the temporal frequency and geographic granularity of existing SDG indicators, especially in ODA-eligible countries, while developing new indicators for under-measured dimensions related to local governance such as institutional quality, administrative capacity and service delivery performance. National statistical agencies should invest in and promote the greater use of innovative data sources, including satellite-derived indicators, georeferenced surveys and administrative records, to complement official statistics and improve the timeliness of subnational data.
Invest in local skills to make greater use of existing databases, administrative records, georeferenced surveys and satellite-derived indicators to complement qualitative reporting.
Leverage the role of academic institutions in contributing methodological expertise, supporting data collection and helping strengthen local statistical capacity.
Measure the non-financial dimension of DDC
Challenge
Non-financial activities are central to DDC partnerships but remain largely under-reported and under-measured. While 71% of DDC projects reported by DAC cities and regions include non‑financial activities or are entirely focused on them, these contributions, including in-kind inputs, are not systematically captured in the OECD CRS, creating a significant gap in understanding the full scale and value of DDC engagement.
Recommendation
Leverage and expand existing methodologies and measurement tools to better capture the scale and value of non-financial DDC activities, including both the resources mobilised by providers and the outcomes generated, to ensure that the full contribution of DDC is reflected in development statistics and policy analysis. Improving the measurement of non-financial DDC would strengthen the evidence base on how partnerships generate value beyond financial transfers. It would also enhance the visibility and strategic recognition of these activities in policy discussions, supporting a more comprehensive understanding of DDC contributions to local governance and SDG outcomes.
Actions
Promote and provide guidance on the use of existing methodologies, such as the reporting directives of the OECD CRS for technical assistance, to systematically capture non-financial DDC inputs including staff time, in-kind contributions and technical expertise in the form of personnel, training and research.
Enhance efforts to track the volume and characteristics of non-financial DDC activities conducted by LRGs, including exchanges, missions, training sessions and study visits, and collect this information in a structured and harmonised way at the national level to build more comprehensive databases of DDC partnerships covering both financial and non-financial activities. While doing so, national governments should ensure that reporting requirements remain proportionate to the administrative and human resource capacities of LRGs, particularly smaller municipalities.
Build on and expand existing methodologies to report non-financial DDC across international organisations, governments and research institutions, such as the CRS modality for technical assistance, to better capture the full range of non-financial activities and, especially, their outcomes and value for both recipients and providers.
Support the testing of newly developed approaches across national governments and municipal associations to capture the outcomes and positive impacts of non-financial DDC through partnership networks, and facilitate their progressive integration into broader M&E and reporting frameworks.
Encourage a more strategic involvement of the private sector in DDC
Challenge
While the private sector currently plays only a limited role in most DDC projects, DDC impact survey findings suggest that LRGs see value in better leveraging the comparative advantages of businesses. In particular, small and medium-sized enterprises, chambers of commerce and other business actors can contribute technical expertise, innovation and pilot technical solutions to address local urban development challenges and provide complementary financing.
Recommendation
Encourage a more strategic and targeted involvement of private sector actors in DDC, including local businesses and municipal companies, to leverage technical expertise, generate economic opportunities in both home and partner territories, and support service delivery improvements.
Actions
Facilitate structured engagement of national and local governments with the private sector through local and national business networks, matchmaking events and calls for contributions to DDC activities, while ensuring that such engagement remains aligned with local development priorities and public governance objectives.
Create opportunities for private sector engagement in DDC activities, for example through access to new markets or partnerships, and the creation of jobs and economic value in both the home and partner territories. Where relevant, this engagement can be connected to broader internationalisation strategies, supporting partnerships between businesses and local private sector actors across DAC and partner countries.
Leverage the expertise of municipal companies that can play a particularly important role as providers of essential public services such as waste management, water and sanitation, energy or housing. Their public service mandate and operational and technical expertise can be further leveraged in DDC partnerships by LRGs through dedicated peer-to-peer exchanges with partner LRGs and their utilities as well as through joint projects, e.g. on piloting technical solutions and supporting the improvement of service delivery.
Leverage civil society and academia as knowledge, implementation and monitoring partners
Challenge
DDC impact survey results identify collaboration with CSOs and LRGs as one of the most effective ways to enhance the local governance impact of DDC, yet CSOs are often treated primarily as implementation or funding channels rather than as territorial partners in the co-design and governance of DDC initiatives. Academic actors are currently strongly involved in less than half of partnerships, despite ranking among the highest priority actions to strengthen DDC impact. The role of national associations of municipalities as strategic intermediaries varies significantly across countries, with strong models in some such as co-financing schemes or training and technical exchanges not yet systematically replicated elsewhere.
Recommendation
Strengthen the engagement of CSOs, academic institutions and national associations of municipalities as strategic partners in DDC. To do so: i) better leverage CSOs as implementing and knowledge partners; ii) further harness the role of national associations of municipalities and city networks as key intermediaries and knowledge providers of DDC activities to strengthen DDC impact; and iii) foster the involvement of academia in DDC as key providers of expertise in M&E and capacity building.
Actions
Embed CSOs in broader territorial partnerships to strengthen local ownership and widen stakeholder engagement, leveraging knowledge of local needs, thematic expertise and proximity to communities. This can be achieved, for example, if LRGs establish structured multi-stakeholder platforms or DDC project consortia, involving CSOs in the co-design and governance of DDC initiatives, and defining clear roles and responsibilities across partners. However, CSOs should not be the sole delivery channel if DDC projects are to generate mutual benefits through peer-to-peer learning and knowledge exchange contributing to expertise and institutional memory between partner governments.
Use academic institutions to strengthen capacity building on how to conduct impactful DDC through tailored training programmes for municipal staff and the development of learning materials, e.g. on the use of M&E frameworks as well as SDG and local governance indicators, to address the lack of capacity at the local level. Furthermore, leverage universities to foster the interest of young people in the importance of international co-operation, e.g. through dedicated degrees, awareness raising activities, events, research and teaching to build a future skilled workforce in the field.
References
[7] OECD (2026), Practical Guidelines for Supporting Locally Led Development: Menu of Options for Shifting Agency and Resources to Local Actors, OECD Publishing, Paris, https://doi.org/10.1787/eaecf72b-en.
[5] OECD (2025), “Harnessing city-to-city partnerships to finance urban development”, OECD Regional Development Papers, No. 124, OECD Publishing, Paris, https://doi.org/10.1787/d782d57d-en.
[6] OECD (2024), Pathways Towards Effective Locally Led Development Co-operation: Learning by Example, OECD Publishing, Paris, https://doi.org/10.1787/51079bba-en.
[4] OECD (2023), City-to-City Partnerships to Localise the Sustainable Development Goals, OECD Urban Studies, OECD Publishing, Paris, https://doi.org/10.1787/d2fe7530-en.
[2] OECD (2023), “Decentralised development co-operation: A global policy toolkit and guidance for practitioners”, OECD Regional Development Papers, No. 46, OECD Publishing, Paris, https://doi.org/10.1787/3cb22851-en.
[3] OECD (2023), Reshaping Decentralised Development Co-operation in Germany, OECD Urban Studies, OECD Publishing, Paris, https://doi.org/10.1787/afedb776-en.
[1] OECD (2018), Reshaping Decentralised Development Co-operation: The Key Role of Cities and Regions for the 2030 Agenda, OECD Publishing, Paris, https://doi.org/10.1787/9789264302914-en.
← 1. The term city diplomacy in this context should not be limited to cities, but also include smaller municipalities and other subnational governments, e.g. counties.