Transcript Part I: Fiscal decentralisation

Part I: Fiscal decentralisation
De- concentration
Political
Administrative
Fiscal
Delegation
Devolution
Building blocks of
fiscal decentralisation
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Expenditure Assignments
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Revenue Assignments
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Intergovernmental fiscal transfers
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Sub national borrowing
Public sector economics, public goods, private goods and club goods Musgrave, Subsidiarity, Pareto optimum
Expenditure Assignments
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Assignment of functions and mandates
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Subsidiarity principle
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Regulatory roles and delivery roles
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Devolved
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Delegated or Agency
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De-concentrated management
Assignment of expenditure modalities
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Recurrent
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Investment
Expenditure Assignments (2)
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General mandate
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Devolved
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Unfunded
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Used or underutilised general mandate?
Specific (or categorical) mandates
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Delegated or Agency
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De-concentrated management
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Own specific mandates - unfunded
Revenue Assignments
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Taxes
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Tax sharing
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Retained (local) taxes
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Types of tax (property tax, individual tax)
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Cost of assessment
Fees
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Specific fees
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General fees
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Rents
Intergovernmental fiscal transfers and
grants
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Conditional
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Discretionary
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Equalisation
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Tax sharing (downwards)
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Formula based
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Matching
Sub national borrowing
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Borrowing from government
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Loans from the private sector
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IFIs and sub sovereign lending
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Municipal bonds
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Links to revenue streams
Public Private Partnerships
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Contracting out / outsourcing
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Private finance initiative
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Non recourse private financing
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Credit enhancements
Types of local expenditure planning
and budget process
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Recurrent
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Salaries
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Goods and services
Non recurrent
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Investment / project / development / capital
Parallel
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Off budget project
Links to plans…
Pulling streams of finance together
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Follow the budget approval…
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Allocation in national budget (approved by parliament or assembly)
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Sector
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Local government
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Parallel (development partner)
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Parallel (private finance)
Expenditure tracking by budget codes
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Territorial, functional, institutional, economic
Hierarchy of priorities
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Be proactive
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Essential / do your best
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Compliance / minimum work necessary
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Do nothing
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Efficiency vs accountability arguments for local government
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Links to (technical) functional and expenditure assignments.
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Links to elected mandates
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Different local priorities
The local government / sector interface
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Strategic choices (be proactive or do nothing)
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Matching funds and discretionary grants
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Governance and accountability issues
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Regulatory responsibility
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Efficiency argument vs accountability argument
Part II: UNCDF
Development challenge for LDFP
Many developing countries are amongst the worlds fastest growing
economies whilst others remain mired in conflict. Globally there is
steady progress towards the Millennium Development Goals and
many countries have met some of their targets. Yet, this overall
picture hides significant disparities and risks. Over 2 billion people
continue to live on less than a dollar a day and whilst absolute
levels of poverty are falling, inequalities are increasing.
Additionally, natural disasters, changing weather patterns and
globalized economic relationships threaten the resilience of
communities to external shocks.
The result is a more uncertain and differentiated world in which
many localities are not sharing the benefits of growth. How
can resources be reinvested locally to build resilience and reduce
inequalities?
Definition(s) of local development
• The outcome of LDFP interventions is sustainable and
equitable local development. This means:
– Leveraging and using local resources
– Providing benefits, employment and services to local people
– In economic terms, promoting forward and backward linkages and
positive pecuniary externalities
– Strengthening and using local institutions
– Strengthening local democracy and local accountability
(Asia UNCDF retreat 2011)
What is Local Development?
"Clearly, it is not just development that happens locally (as all
development ultimately does), but rather development that
leverages the comparative and competitive advantages of localities
and mobilizes their specific physical, economic, cultural, social and
political resources. Said differently, in the expression local
development the adjective local does not refer to the where, but to
the who and the how of development promotion. It refers to the
actors that promote it and the resources they bring to bear on it.
Development is local if it is endogenous, open and incremental,
that is: if it makes use of locality-specific resources, combines them
with national/global resources and brings them to bear on the
national development effort as additional benefit in a positive sum
game."(Romeo, The Imperative of Good Local Governance, Chapter 3: 2013)
Four Local Development Finance
investment instruments (1)
1) Local Development Fund, capitalisation of public financial
management systems with fungible capital and investment
resources that enables proof of concept of innovative local
development finance (e.g. decentralisation, local procurement,
local revenue, local public financial management, service
provision, infrastructure)
2) Municipal Credit, support to those local governments and
other local public institutions (e.g. utility companies) in accessing
greater financial resources through new instruments such as
municipal debt, public private partnerships, bonds, etc.
Four Local Development Finance
investment instruments (2)
3) Local Finance Initiative, structured project finance that
provides advice, technical assistance, seed capital and credit
enhancement for private (or PPP) infrastructure investments
enabling them to secure sustainable finance from (preferably) local
capital.
4) G2P, piloting and testing micro fiscal grants (social payments,
scholarships, compensation etc) in ways that promote local
development and complement other investment instruments
(linkage with FIPA)
LDF Phase 1
Myanmar?
Post crisis
Original Uganda,
Mozambique etc
MoU
CG
Separate account but
applying government
procedures
LG
CDF support to Local
planning, budgeting and
procurement process
LDF Phase 2
Lao PDR
Solomon Islands
MoU
CG
LDF funds
Transfer according to
terms of MoU
May be mainstream
government account or
separate account but
applying government
procedures
LG
CDF support to Local
planning, budgeting and
procurement process
LDF Phase 4
Bangladesh
Nepal
Bhutan
Others ?
MoU ?
CG
New pilot system
Transfer according to
terms of MoU
Mainstream
government fiscal
transfer system
LG
CDF support to Local
planning, budgeting and
procurement process
LDF Phase 4
Bangladesh
Nepal
Bhutan
Others ?
MoU ?
CG
New pilot system
Transfer according to
terms of MoU
Mainstream
government fiscal
transfer system
LG
CDF support to Local
planning, budgeting and
procurement process
What is Capital?
1) A factor of production in classical economic theory as defined by
Marx, Smith and Ricardo
2) An accounting term in Public Finance theory and practice as defined
by Premchand et al.
3) Cash or goods used to generate income as defined in many English
language dictionaries
4) Large scale fiscal and financial flows as defined in national financial
and banking legislation
5) A particularly useful and expendable resource endowment – e.g.
human capital, political capital
6) The political or administrative centre of a territorial jurisdiction
The UN’s Capital Development Fund works with the first five
definitions… All these five are applicable in the diagram
On or Off
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On budget in a parallel way (some SWAPs)
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On budget approved by parliament
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On treasury, or on ministry special account
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On plan, or on thematic plan
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On procurement? With what regulations
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Efficiency argument vs accountability argument
Performance grants
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Process related (v important point)
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Size of grant is crucial
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Assessment process must be sustainable
UNCDF Intervention Approach in Local Development Finance
Country context
Post conflit / Fragile
phase
Key points of the context
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Emerging phase:
Decentralization start up
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Consolidation phase: Ongoing decentralization,
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Maturity Phase or new
approach?
Added Value of a regional
program
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Priority Goals for UNCDF
Weakness in basic services
Weak role of government in financing LD,
reliance on non-government service
delivery
Absent, weak or ineffective institutional
frame for fiscal decentralization
Emerging of a fiscal decentralization
process
Absence/ lack of social confidence
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Basic institutional and regulatory
framework for fiscal decentralization is in
place
LGs have developed an initial capacity to
deliver basic services
Slowness in the fiscal decentralization
process nevertheless debates on creation
of a national policy and mechanisms
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Political and institutional stability
LGs have developed an intermediate
capacity to deliver basic services and
increasingly engage non-state actors
Regulatory framework for decentralization
in place and operational –technical and
financial system supported by donors
Strong policy dialog
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Stronger emphasis on better integration
and coordination between LGs for
development and service delivery
Regional integration as a new topic for
local development
Help for security and stability, especially in
rural, landloocked and cross border areas
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Role of local investments
Ongoing pilot experiences to raise awareness
on fiscal decentralization
Support the emergence of a fiscal
decentralization policy
Build viable and stable local institutions with
the view to stabilize the political situation
through a bottom-up process
Explore the ways of mobilizing private finance
for basic service delivery and LD
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Consolidate and scaling up pilot experiences in
order to build up the national institutional and
regulatory system
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Help LGs address new local development
challenges (Gender, Food security)
Put in place systems for LED and private sector
finance mobilization
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Harmonize the fiscal decentralization process
Develop funding mechanism and tools for
coordination at the regional level
Place LD in the context of regionalization and
globalization, including access to
regional/international financial markets
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Countries
Build a participatory/ inclusive
process (pre-mu)
Define local-based investments
Develop Basic Tools for Local
Development
Guinea-B.
Sierra-L.
Liberia, Yemen,
South Sudan, Somalia
DRC
Build the institutional framework at
local and national level
Develop innovations in local
development (scale/ nature of nat /
local regulations)
Guinea
Mauritania
Niger, Malawi,
Ethiopia,
Mozambique
Develop and strengthen the
national system
Innovate with original LDF windows
Unlock domestic capital for LD
Benin, Senegal, Mali,
B Faso, Rwanda,
Uganda, Tanzania
Build regional integration through
local development
Connect local investments to global
processes and opportunities
LOBI
ACTA
The Core Approach : How do we use our Investment Mandate ?
Country context
Post conflit / Fragile
states
Why?
• Build a
participatory/
inclusive process
(pre-mu)
How ?
Channel of Investment
Level of
investment
Inputs
Outputs
• Direct payment ot
suppliers
• Simple and clear
• Fiduciary Risk Assesment
• Procurement guides or
Guidelines
• 1.5 to 3
• and/or to LGs by
USD/Capita or
• Developing the contractual
UNCDF
lump sum
process
• National code of
procurement for local
• Define local-based
• Build procurement
investments
contracting
procedures
Define contracts content
• Develop Basic
• Investment Tools
Tools for Local
• Institutionnal
Development
Consolidation phase
• Build the
institutional
framework at local
and national level
• Planning tools
participatory framework
• Develop
• Use national
mechanism for local
investment (including
Treasury mechanism PEM)
innovations in local
• Direct payment to LGs
development (scale/
bank account
• Simple and clear
• Sthrenghening the
contractual process
• Performance Grant
System
• Budget support to LGs,
• Municipal code on
• Based on past
exp. (20% more)
procurement
• LG Assesment
• Local Governements
nature of invt / local
Code
regulations)
• National
Decentralization Policy
Maturity phase
•Make the national
system strongest
• Theasury mechanism
• Basket fund
• Innovate with
• Allocation
mechanism for
local investment
and/or thematics
• LG Assesment
• PEM Assesment
• National
Decentralization Policy
for thematics (FS, LED,
CC)
Example: LoCAL
How to finance climate adaptation
Will Climate Proofing
come from Recurrent
or Project?
Capital
Non - Capital
Some air
conditioners
Teachers’ Salaries
A new school
building
A road maintenance
programme or staff
training consultancy
Recurrent
(normally
incremental changes
in resource
envelope)
Project
(fluctuation in
resource envelope,
specific approval
process, activities of
finite duration)
Draft for discussion: DJ 03/2010
Some personal inspirations
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Greater London Plan, 1947, Abercrombie, London County
Council
Strategic Planning in Local Government, 1997, Leach and
Collinge
Good Government in the Tropics, 1997, Judith Tendler
Development, Geography, and Economic Theory, 1997,
Krugman
Spaces of Global Capitalism: A Theory of Uneven
Geographical Development, 2006, Harvey
Imagined Communities: Reflections on the Origin and
Spread of Nationalism, 2006, Anderson
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Notes on the Difficulty of Studying the State, 1977, Abrams
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Participation: The New Tyranny, 2001, Cooke and Kothari