17.02.2016 seite 1 seite 117.02.2016 eaz public forum - on decentralisation presentation by: mr....

04.05.23 Seite 1Seite 104.05.23

EAZ Public Forum - On Decentralisation

Presentation by:Mr. Peter Dineiger, Team Leader

Support to Decentralisation Implementation (SDI) Programme – ZambiaFunded by the

German Federal Ministry for Economic Cooperation and Developmentand carried out by GTZ within the German Development Cooperation (GDC)

04.05.23 Seite 2Seite 2

EAZ Public Forum - On DecentralisationRationale for Decentralisation:Decentralisation is a process, or a means, to attain economic, political and social

objectives - and is not an end in itself. For example: Economic objectives: decentralisation can increase the efficiency of public goods

and service provision by making this provision more responsive to local needs and, by developing local implementation capacity, enhance the ability of the public service to deliver quality public goods and services.

Political objectives: decentralisation can improve the quality of governance, facilitate greater participation in local decision making and raise the accountability and transparency of public sector managers and decision makers to citizens.

Social objectives: decentralisation can facilitate the equitable allocation of resources and public services across the national territory and so may contribute to overall poverty reduction.


EAZ Public Forum - On DecentralisationDecentralisation - the need for a coherent and consistent implementation strategy

While there is no blue print - every country must design its own decentralisation process and timetable - there are certain fundamental principles that must be observed. For example:

The legal (constitutional and statutory) framework must be supportive of effective decentralisation i.e. confers real decision making autonomy to democratically accountable bodies in those areas where local autonomy is desirable e.g. local service provision but not e.g. national defence.

Intergovernmental fiscal relations (i.e. the allocation of expenditure responsibilities between different levels of government and the resources needed to execute them) must be engineered such that local decision making is backed by adequate financial resources - “finance follows function". This includes a framework for the linkage of planning instruments at district, provincial and national levels.

The institutional arrangements for implementing the decentralisation process e.g. designing open and transparent budgeting, accounting and public information systems, building local service delivery capacities and designing supportive oversight mechanisms for ensuring minimum service delivery standards etc. must be well planned and sequenced.


EAZ Public Forum - On DecentralisationFiscal Decentralisation:

I will focus the rest of my presentation on this aspect of decentralisation and lessons that can be learnt from international experience that can inform the decentralisation process here in Zambia.

There are some basic considerations on fiscal decentralisation, which are underlying principles for my following presentation.

The allocation of expenditure functions broadly reflects the “subsidiarysubsidiary” principle (i.e. functions are allocated to the lowest level of government where they can be effectively executed), and

The division of tax bases and revenues between the various levels of government reflect the relative costs of executing the functions allocated to each level. This funding principle is completed by an adequate support system at national level.

Again there are internationally recognised principles that should be observed when undertaking a fiscal decentralisation reform programme. At least 11 “rules” should be observed.


EAZ Public Forum - On Decentralisation Rule 1: Reform of the system of Intergovernmental fiscal relations (IFR s) must be

comprehensive addressing all four “pillars” of fiscal decentralisation1. Significant LA expenditure responsibility (for local service provision and infrastructure

investment/maintenance - ) together with significant discretion to raise “own” revenues through property rates, user fees (where beneficiaries can be identified), licences etc.

2. Equitable tax base assignment & revenue sharing arrangements between the various levels of government (so that a “significant” portion of LA revenues are “own” revenues),

3. “Rules-based” inter-governmental transfers (conditional and unconditional grants) to achieve “vertical” and “horizontal” equity between Central and Local Governments and between Local Government’s respectively and

4. Conferment of (bounded/conditional) borrowing authority to politically autonomous, locally elected LA s who appoint their chief officers and prepare their budgets within a hard budget constraint.

Rule 2: “Finance follows function” - Once expenditure responsibilities (responsibility for functions) are assigned, the cost of executing these responsibilities can be assessed and this assessment (together with an assessment of LA “own” revenues generation potential) used to inform decisions regarding the assignment of revenue bases and the quantum of intergovernmental transfers required to close the gap between expenditure responsibilities and own revenue generation.


EAZ Public Forum - On Decentralisation Rule 3: Strong capacity within Central Government to design, manage, monitor &

evaluate and further develop IFR s - in particular a competent fiscal analysis unit that continuously monitors LA performance through an extensive Management Information System (MIS) that facilitates financial and quantitative monitoring and evaluation of local government service/ infrastructure provision (based on e.g. service charters, minimum services standards, conditional transfers etc.) and financial performance (based on LA financial management systems) and uses this MIS to manage and further develop the system of IFR s (e.g. amendment of the formulae used to disburse intergovernmental transfers).

Rule 4: One size does not have to fit all - different expenditure responsibilities, revenue raising and borrowing powers and reliance of intergovernmental transfers may be appropriate as LA s have different:

capacities to deliver and finance services and infrastructure projects; and “packages” of services/infrastructure projects as they respond to their own

citizens’/electorates’ priorities.but there should be clear rules about when a council “graduates” from one tier of LA to

another.


EAZ Public Forum - On Decentralisation Rule 5: LA taxing powers should be both significant and visible with the tax burden

falling on local citizens/businesses (not passed on to people/businesses outside the LA’s jurisdiction) - e.g. property rates and a local income tax supplement to a centrally collected income tax - to ensure voters hold their locally elected LA s to account.

Rule 6: Central government designs the IFR system and must adhere to the rules they make e.g. there must be no:

“flypaper effect” as regards shared revenues when times get hard, assignment of new unfunded (or under-funded) expenditure mandates, abolition of local taxes or undermining local autonomy in determining

budgets/expenditure priorities if the Centre thinks “wrong” choices are made.

Rule 7: Keep the IFR system as simple as possible - so that LA s can implement it and Central Government can monitor and evaluate e.g. don’t have:

grant allocation formulae that cannot be supported by reliable updatable data, taxes that have large non-revenue raising objectives, and conditional grants that have onerous monitoring requirements and entail special

accounting/ reporting systems. But simplicity should not drive fiscal decentralisation - some complication may not be avoided.


EAZ Public Forum - On Decentralisation Rule 8: The IFR system should consider all levels of government i.e. Provincial

government is too remote to allow effective citizen participation that ensures that voter preferences will matter or accountability of government officials will result. Thus fiscal decentralisation must be carried through to the lower levels of government.

Rule 9: Impose a Hard Budget Constraint on LA s - autonomous LA s must balance their budgets without any e.g. end of year deficit grants or bailouts of delinquent debt from a paternalistic Central Government. The fiscal year must start with vertical balance between the Centre and LA s and a known and certain grant distribution.


EAZ Public Forum - On Decentralisation Rule 10: IFR systems are dynamic and require active management and revision by

Central Government - changing LA capacities, shifting investment priorities, varying regional economic growth and population rates etc. mean that central government must incorporate flexibility into the IFR system to facilitate this changing context while keeping a transparent IFR system by e.g.

establishing a IFR Commission to review and recommend changes in e.g. grant allocation and revenue sharing formulae every few years,

allowing changes in the local tax structure to reflect changes in local economic structures, graduation procedures whereby a LA can move up to a higher tier of LA with greater fiscal

autonomy. Thus, detailed fiscal decentralisation provisions in the Constitution should be avoided as this

makes the IFR system inflexible - however the Constitution should enshrine the principles of an equitable system of IFR s so that Central Government cannot design systems that are too flexible or ad hoc as this does not promote transparency. Furthermore without constitutional enshrinement of such principles, a sustainable system of equitable IFR s is unlikely to be achieved.

Rule 11: Like Decentralisation as a whole, Fiscal Decentralisation needs a strong “champion” - to ensure that policy rhetoric (and indeed Constitutional principles that stipulate an equitable system of IFR s) are translated into practical action.


Local Government Revenue Sources


Service Provision by Councils


Comparative African Data on Central Government Support in Local Authority Finance


A comparative perspective on local government share of consolidated public expenditure

0 0.1 0.2 0.3 0.4 0.5 0.6

China

Poland

Uganda

Kazakhstan

Argentina

Brazil

Indonesia

South Africa

Chile

India

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