Measuring Financial Condition Of Urban Local Government: A Study Of Municipaities In Bangladesh

Studies on local governmental financial conditions are focused on developing tools for detecting and avoiding potential financial problems. These studies are confined mostly in self-governed local government entities in the western world. This research seeks to measure financial conditions of local government organisations in Bangladesh. Municipalities, one of the two types of urban local government, play an important role in providing a range of services and carrying out certain socioeconomic objectives in Bangladesh. Using financial data from a representative sample of 72 municipalities, this research measures and compares municipal financial conditions of local government municipalities in Bangladesh. A composite index of eleven indicators was developed under four dimensions, viz., short term solvency, budgetary solvency, service level solvency and long term solvency by following the relevant literature on local government financial conditions as well as keeping consistency with data availability. This composite index was applied to measure the financial conditions of the three classes (Class I, II and III) of municipalities in Bangladesh for a period 2007 to 2015. Results obtained indicate that there are differences across these three types of municipalities in their overall financial conditions as well as in their short term, long term and service level solvencies. The index measure explains the financial and operational strengths and weaknesses of municipalities, a clear understanding of which is necessary for improving their performance on sustainable basis. The result of this research is likely to have implications for devising policies for making municipalities more effective organizations. While, the findings will help municipal management to focus their operations to improve their financial and service performance, policy makers at the central level will find it as a useful tool in devising policies for equitable distribution of resources among municipal organizations.