International financing plays an essential role in helping local governments fund their delivery to citizens.
The Municipality of Cuenca, Ecuador, shared its experience in mobilizing international funding for local development projects during a UNDP conducted webinar.
This article highlights how the city of Cuenca demonstrates how local governments can collaborate with international organizations to finance and implement local development projects.
Watch Cuenca’s presentation here.
Improvement of integrated waste management
The Integrated Waste Management project in Cuenca is implemented in collaboration with the Korean International Cooperation Agency (KOICA). Running from 2023 to 2029, the project takes a circular economy approach. It received USD 9 million in non-refundable funding from KOICA, complemented by a municipal counterpart contribution of USD 1.07 million. The project is expected to benefit approximately 865,000 inhabitants in Cuenca.
What were the key factors that enabled this international cooperation?
- Cuenca’s policy preparedness and institutional readiness were crucial for international cooperation. The Mayor’s Office clearly articulated urban priorities with concrete proposals, enabling multiple implementation options and facilitating international collaboration.
- Clear dialogue with KOICA Ecuador was vital, especially for cities like Cuenca that face major financing challenges. By developing specific tools and a vision of what needed to be achieved, the municipality crafted a strong proposal to be considered by KOICA.
- The project designed a comprehensive waste management system, integrating policies that promote recycling and converting organic waste into compost.
- The project identified a clear counterpart at the local level. The EMAC EP, a municipal public enterprise in charge of water and sanitation, that was designed as the responsible for project implementation, working closely with KOICA
So far, the project has resulted in the creation of a solid waste management cluster that addresses both organic and inorganic waste, the implementation of public awareness campaigns, and the formulation of environmental public policies incorporating sustainability principles into local laws and regulations. Additionally, the project highlights the vital role of political commitment, which draws the interest of international organizations and helps unlock cooperation opportunities.
Credit: EMAC EP
Low-emission historic centre
The Low-emission historic centre project is a sustainable urban mobility programme supported by KfW. The total financing package amounts to approximately USD 24.3 million, channelled through the Development Bank of Ecuador (BDE). This includes a non-refundable component of around USD 10 million and a repayable loan of approximately USD 25 million.
What were the key factors that enabled this international cooperation?
- Ecuador’s institutional repayment mechanism for international credit was crucial for securing this funding. The government consistently transfers funds to municipalities. When they have debt, repayments are automatically deducted from these transfers. The central bank withholds debt service and pays lenders directly, reducing risk, streamlining flows, and boosting lender confidence.
- Starting from preparatory work around 2019, the initiative aligns with wider climate objectives. The project was rolled out in phases and encountered challenges, including technological adaptation, which the municipality tackled by collaborating with the Directorate-General for Mobility and the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ).
Launched in 2023, the project focuses on electromobility, involving research on electric bus fleets and the expansion of cycling infrastructure. Its main goal is to enhance network connectivity and boost public trust in cycling as a practical daily transport option. Approximately 600,000 people are expected to benefit from this initiative.
At this stage of consultation, five consultancies have been created, consisting of three technical and two supervisory firms. KfW has actively participated throughout the process, offering technical guidance and conducting regular missions to Cuenca.
Credit: cuenca4riosec
Financial leverage supported by international organisations
A distinctive feature of the low-emission historic centre project is the use of financial leverage through partial guarantees. Approximately 70% of the credit risk is covered by guarantees from the French Development Agency (AFD) and the European Union (EU). A financial guarantee is a promise by a third party to cover repayment if the main borrower defaults.
This guarantee structure allowed Cuenca to become the first city in Latin America to secure a loan without a sovereign guarantee. These instruments supported a USD 25 million loan, funding a broader program that includes sustainable mobility, solid waste management, and green public spaces. By avoiding the requirement for a national sovereign guarantee by the central government of Ecuador. This method enabled Cuenca to secure financing directly at the municipal level, leading to quicker implementation and less reliance on national intermediaries.
Several enabling conditions supported the success of this financing approach:
- Demonstrates compliance with sustainability standards through past projects and quantifiable outcomes consistent with green transition objectives.
- Municipal financial strength and credibility, which reassured international partners of Cuenca’s ability to handle complex financing instruments.
- Institutional continuity ensures that project development and implementation are not entirely reliant on the current mayor but are integrated into municipal structures, establishing Cuenca as a lasting regional leader in sustainability.
The negotiation under the EU Global Gateway aims to mobilize green financing for sustainable infrastructure. It demonstrates Cuenca’s alignment with European climate priorities through its Green Pact for Ecuador, making it eligible for EU funds for climate action.
Recommendations and conclusions
For local governments looking to draw inspiration from Cuenca’s experience, the following areas deserve special focus:
- Clear identification of municipal needs, ensuring projects directly address residents’ real-life experiences.
- Aligning strategies with donor priorities by framing proposals to meet the objectives of funding institutions and credit providers.
- Attaining green certifications and sustainability standards.
- Existence of comprehensive and integrated local strategies.
International cooperation helps local governments build capacity and promote sustainable development. Cuenca shows that with a clear approach, structured processes, and leadership, municipalities of all sizes can access international financing.