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Panama and the Inter-American Development Bank (IADB) have signed a contract for a US$7.8mn loan for a municipal modernisation and decentralisation programme that will promote local development.

The IADB loan will help Panama modernise its municipal governments and improve their capacity to invest in public works such as storm drainage and flood prevention systems, public parks and squares, markets and abattoirs, and infrastructure for waste disposal and treatment.

The programme will also support a process to build consensus and formulate a national policy for decentralisation between the central government and municipalities, as well as studies to develop systems for financing, planning and service delivery at the local level.

The programme is expected to foster a gradual and fiscally responsible decentralisation process and help municipal governments develop the institutional capacity to better respond to the demands of their population.

On the social side, the programme will introduce participative planning methods that will help optimise the allocation of municipal resources for investments that reflect citizen priorities, leading to improvements in living standards, local development and poverty reduction.

The programme reflects the strategy shared by the IADB and Panama of supporting institutional reforms to strengthen good governance and increase transparency. It will also complement other municipal strengthening projects supported by multilateral institutions and bilateral aid agencies in Panama.