The Program Development Objective (PDO) is to enhance the institutional performance of participating Urban Local Government (ULGs)to develop and sustain urban infrastructure, services, and local economic development.

The development objective of the Urban Institutional and Infrastructure Development Program Project for Ethiopia is to enhance the institutional performance of participating urban local governments to develop and sustain urban infrastructure, services, and local economic development. The proposed Urban Institutional and Infrastructure Development Program (UIIDP or Operation) will support the objectives of the WB's Ethiopia Country Partnership Framework (CPF) (2018–22). The CPF for Ethiopia, discussed by the Board on June 27, 2017, has three strategic focus areas: (a) promoting structural and economic transformation through increased productivity, (b) building resilience and inclusiveness, and (c) supporting institutional accountability and confronting corruption. The proposed UIIDP supports all three focus areas. The UIIDP's fundamental objectives and funding directly target the strengthening of urban governance and management systems, participatory strategic and spatial planning, improved transparency and accountability enhanced citizen engagement in decision-making of urban governments (including of women), public private dialogue, and directly financing urban infrastructure and services. By assisting to create well-functioning and productive urban centers, the UIIDP contributes to the WB's twin goals of ending extreme poverty and boosting shared prosperity.The proposed Operation will be financed through a hybrid of Investment Project Financing (IPF) and Program-for-Results (PforR) instruments. Most of the Operation is financed through the PforR instrument, which has proven to be the optimal and effective mechanism for providing conditional grants to regional states and ULGs, as demonstrated in the ULGDP II. There are four primary reasons for this. First, the UIIDP directly supports the government program and forms a core part of the existing intergovernmental fiscal architecture. Second, the basic goal of the UIIDP is to leverage the improved institutional performance of the local governments it supports to more effectively deliver infrastructure and service delivery, and ensure meeting of broader objectives and maximizing of development impact. Due to the direct relationship between the institutional results and the Program disbursements, the PforR instrument allows for a directly incentive-driven approach to achieve the Program Development Objective (PDO). Through the use of disbursement linked indicators (DLIs), the UIIDP will ensure that incentives of the regional and local levels of government are effectively aligned around the goals of the Program. Third, the Program will use, improve, and integrate GoE and local government systems, including public FM, social and environmental systems management and procurement systems. Fourth, the PforR instrument has proven as an effective and efficient tool in the implementation of the ULGDP II and this modality is critical to the success of the program. The government's new UIIDP (2018–23) envisions that all cities will gradually generate increasing levels of municipal own-source revenues, with which to finance investments in infrastructure and deliver services. However, this will be a long-term process.