Session 4.2 Innovating funding modalities to LAs. What can we do?

Jorge Rodríguez Bilbao DEVCO UNIT B2 “Civil Society and Local Authorities" EUROPEAN COMMISSION - DG DEVCO

REGIONAL SEMINAR on Decentralisation & Local Governance In Anglophone and Lusophone Africa (Nairobi, Kenya, 11-14 November 2013)

Existing options within EC procedures to channel funds directly to LAs

Call for Proposal (CfP)/direct granting: 1.Access to funding through competitive mechanisms amongst LAs, (CfP) is inadequate, for three main reasons:  First, the philosophy of competition inherent to CfP goes directly against the promise of a more equitable distribution of public resources inherent adopted by the decentralization process; • • Second, The CfP assumed that the beneficiary "already knows", leading to competition before capacity development had taken place. Actors had to prove a “know how” that they did not yet have to be eligible for funding. And last but not least, some of the selection criteria could be, in fact in contradiction with competences of LAs a defined by law (For instance, assessing whether a proposed action is relevant or not is the sole prerogative of the LAs, and not the resort of an external agent, such as a donor.

2.Direct grant awarding modality to LAs can be justify by the “jure monopoly and the exclusive competence” argument: Need to introduce a derogation request

① ② ③

Practical example: PRODEL (Mozamique)

Direct grant funding to LAs for local economic public infrastructure: LAs as ’contracting’ authorities Direct granting provide a relatively easy source of funding ( direct granting without Call for Proposal significantly simplifies our procedures!!…), but still requires the LAs to submit project proposals that meet a minimum quality

standard Projects need to conform to the existing planning

modalities and technical specifications established by the Government, plus any additional criteria introduced by ProDEL, such as the actual impact on local economic development, the participation from the district consultative councils in project identification, the LA's pledge to ensure management and maintenance of the facility, etc. etc

PRODEL (Mozamique)

ensure an optimal alignment with and integration into the government system.:

1. On-planning: ProDEL objectives and results are included in the planning documents at sector and institution level (such as the provincial and district plans); 2. On-budget: ProDEL funding is included in the Medium term Expenditure Framework and State Budget, using the existing classifications and formats; 3. On-CUT: ProDEL funds are disbursed into the treasury account (CUT, or Conta Única do Tesouro). Provincial, district and municipal Authorities will access ProDEL funds through the national online PFM system (this should increase transparency as funds can be traced throughout the process, from disbursement into the CUT, till payment to the beneficiary); 4. On-procedures: Works, supply and service procurement procedures required for the for the implementation of ProDEL follow national

procedures

PRODEL (Mozamique)

ensure an optimal alignment with and integration into the government system.:

5. On-accounting: ProDEL funding is recorded and accounted for in the government accounting system, in line with the government’s classification system; Local Authorities would submit online the requests for payment of ProDEL. Treasury will validate and carry out the payment, directly from the treasury account (CUT) to the beneficiary.. The system therefore generates an electronic trail from disbursement to payment, including identification at each stage of the individuals involved; 6. On-audit: ProDEL funding is audited through the prevailing government auditing system

7. On-reporting: ProDEL funding is included in the quarterly budget execution reports and state accounts for the execution of government

activities. This will ensure coherence between what is included in the budget and what is reported in the State Accounts

Fluxo de fundos para os subsídios

Comissão Europeia endosso Ordenador Nacional (MINEC)

1 assinatura contratos de subsídios

Governos Distritais Governos Municipais

2 transferência fundos

Direcção Nacional do Tesouro (DNT) Ministério das Finanças (MF) Co-assinatura da conta Conta Forex Banco de Moçambique 3 – transferência CUT €l 4 – transferência CUT Mt

5 abertura contas bancárias

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SISTAFE

--------------------------------------------------------------------------------------------- Plano de Tesoureira – Pedido de pagamento Direcção Nacional do Tesouro (DNT) Ministério das Finanças (MF) Governos Distritais Governos Municipais Pagamentos Contratos de obras, bens e serviços

Guidance on Fiscal decentralization

Growing demand for guidance on how to assess and address Fiscal Decentralisation (FD) in a more systematic manner in EU development cooperation processes Why?

① ② A consensus is progressively being built around the need for EU to provide guidance within the regional seminars on BS (Hanoi 2007, Bangkok 2008, Nepal 2009, Jakarta 2010 and Bangkok 2012) The new EC Communication   It affirms “

EU should consider fiscal decentralisation as a strategic entry point to progressively build an accountability culture”

it invites EU to (i) explore the use of innovative funding modalities

facilitating access to resources at local level; (ii) involve sub national governments in the design and implementation of budget support and (iii) factor decentralisation in budget support operations.

Objectives of the guidance on FD

Integrate fiscal decentralisation in EU operations.

Autonomy Accountability

① ② ③ ④ Make the issue of fiscal decentralization out of its technocratic remit and foster its practical use by EUDs (as one key ingredient of their overall intervention strategy); Explore the linkages between fiscal

decentralisation/local government

autonomy and key development objectives (such as improved service delivery, inclusive growth, local governance, domestic accountability, etc.); Identify ways and means to directly or indirectly support fiscal decentralization;

Pave the way for developing an EC approach for Sector/BS at decentralized

levels and innovating funding modalities for Local Authorities;

Process of producing the Guidance

Two parts:

① ②

Part I (mid-November 2012 to mid-December 2013) aims to

elaborate (i) a concept chapter on fiscal decentralisation; (ii) a navigating tool to “map” the Local Public Sector and (iii) a ‘Discussion Note’ that will set the agenda of the main strategic and operational questions to be further explored in order to better integrate the fiscal decentralisation dimension when designing and implementing sector (budget) support in a decentralized context. Part II (January 2013 to December 2014). Building on the products of Part I, the next phase of the assignment will seek to provide concrete

answers to the operational dilemmas raised in the Discussion

note.

Guidance on Fiscal Decentralization

A basic navigation tool to ‘visualize’ the local public arena:

① ② ③ The different actors

involved

The distribution of roles and responsibilities in the

intergovernmental system The flow of funding

What do we need to know about the local public sector in order to design effective development interventions? (1)

LEGISLATIVE SYSTEM PARLIAMENT

Central Public Sector (Ministries, state bureaucracy)

PROVINCE

Local authori es THE LOCAL PUBLIC SECTOR Local Deconcentarted TTthhhhhhh bodies Parastatals

JUDICIAL SYSTEM COURTS

Localized Front-Line Service Delivery to Residents, Civil Society and the Private Sector

① ② ③ ④ ⑤ What is the (organizational and

governance) structure of the

public sector?;

Who (and at which level) is

responsible for what functions?

How much is being spent at each

local level (through each different mechanism)?

How are resources distributed

across the national territory?

How effective are local bodies in delivering public services and/or supporting the achievement of

development outcomes?

Thank you!!