Republic of Uganda
LOCAL GOVERNMENT FINANCE COMMISSION
Review of Local Government Financing Financing Management and Accountability for Decentralized
Service Delivery
OCTOBER 2012
Review of Local Government Financing in Uganda
Page i of 150 FINAL Draft Report
ACRONYMS AND ABBREVIATIONS
BFP Budget Framework Paper
bn Billions
CAOs Chief Administrative Officers
CG Central Government
CG Central Government
COU Church of Uganda
DDP District Development Plan
DDP District Development Plan
DEC District Executive Committee
DPSF Decentralization Policy Strategic Framework
DTB Development Transfer Budget
EFICON EFICON Consulting Ltd
EFT Electronic Financial Transfer
FDA Fiscal Decentralization Architecture
FDS Fiscal Decentralization Strategy
FINMAP Financial Management and Accountability Program
GoU Government of Uganda
GT Graduated Tax
HC II, III, IV Health Centers at Levels Two Three and Four
HLG Higher Local Government
IGFRs Inter-Governmental Fiscal Relations
IPFs Indicative Planning Figures
JAF Joint Assistance Framework
LC Local Council
LDG Local Development Grant
LED Local Economic Development
LG Local Government
LGA Local Government Act
LGBC Local Government Budget Committee
LGBFP Local Government Budget Framework Paper
LGFC Local Government Finance Commission
LGHT Local Government Hotel Tax
LGMSD Local Government Management and Service Delivery
LGROC Local Government Releases Committee
LLGs Lower Local Governments
LMs Line Ministries
LRR Locally Raised Revenue
LST Local Service Tax
MC Municipal Council
MDAs Ministries Departments and Agencies
mn Millions
MoES Ministry of Education and Sports
MoFPED Ministry of Finance Planning and Economic Development
MoLG Ministry of Local Government
MoLG Ministry of Local Government
MTEF Medium Term Expenditure Framework
NAADS National Agricultural Advisory Services
NBFP National Budget Framework Paper
NDP National Development Plan
NGOs Non-Governmental Organizations
NPA National Planning Authority
O&M Operations and Maintenance
OBT Output Budgeting Tool
OPM Office of the Prime Minister
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OSR Own Source Revenue
PAF Poverty Action Fund
PEAP Poverty Eradication Action Plan
PFAA Public Finance and Accountability Act
PHC Primary Health Care
PRDP Peace Recovery and Development Program
PS/ST Permanent Secretary and Secretary to the Treasury
RTB Recurrent Transfer Budget
Shs Shillings
SSC Sector Standing Committees
STP Straight Through Payment
SWAPs Sector Wide Approaches
SWGs Sector Working Groups
TC Town Council
TPC Technical Planning Committee
UCG Unconditional Grant
UGX Uganda Shillings
UPE Universal Primary Education
USE Universal Secondary Education
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TABLE OF CONTENTS
ACRONYMS AND ABBREVIATIONS ............................................................................................................. i
TABLE OF CONTENTS.................................................................................................................................... iii
EXECUTIVE SUMMARY ........................................................................................................................... a
1 BACKGROUND AND RATIONALE ................................................................................................. 6
1.1 Background .................................................................................................................................... 6
1.2 Rationale for the Review of Local Governments’ Financing ................................................ 6
1.3 Objectives and Scope of the Study........................................................................................... 7
1.4 Organization of the Report .......................................................................................................... 7
2 APPROACH AND METHODOLOGY .............................................................................................. 8
2.1 Introduction .................................................................................................................................... 8
2.2 General Study Approach ............................................................................................................ 8
2.3 Sector Case Studies ...................................................................................................................... 9
2.4 Data Analysis and Validation of Findings and quality assurance ...................................... 10
2.5 Study Limitations .......................................................................................................................... 10
3 REVIEW OF FISCAL DECENTRALIZATION STRATEGY .................................................................. 11
3.1 The Uganda Decentralization Policy ....................................................................................... 11
3.2 Imperatives and features of the Fiscal Decentralisation Strategy ..................................... 12
3.3 Experience in implementing the FDS ....................................................................................... 13
3.4 Conditions affecting the implementation of the FDS........................................................... 17
3.5 The forward for the FDS .............................................................................................................. 19
4 INTER-GOVERNMENTAL FISCAL RELATIONS .............................................................................. 21
4.1 Introduction .................................................................................................................................. 21
4.2 Key Findings Associated With the IGFR ................................................................................... 21
4.3 Proposal on review of grant system ......................................................................................... 40
4.4 Key recommendations ............................................................................................................... 42
5 ANNUAL PLANNING AND BUDGETING CYCLE ......................................................................... 46
5.1 Introduction and background .................................................................................................. 46
5.2 Findings relating to the Local Government Planning and Budgeting process ............... 48
5.3 Central and LG Planning and Budgeting cycle under FDS (2002) .................................... 51
5.4 Review of implementation of the Annual Planning and Budgeting Cycle ..................... 53
5.5 Key recommendations ............................................................................................................... 57
6 RELEASES, REPORTING AND ACCOUNTABILITY MECHANISMS ................................................ 59
6.1 Introduction .................................................................................................................................. 59
6.2 FDS and release, reporting and accountability mechanisms ............................................ 59
6.3 Releases ......................................................................................................................................... 60
6.4 Reporting ....................................................................................................................................... 65
6.5 Accountability mechanisms ...................................................................................................... 67
7 LOCAL REVENUE ENHANCEMENT .............................................................................................. 70
7.1 Background .................................................................................................................................. 70
7.2 Local Revenue Administration in Uganda .............................................................................. 71
7.3 Analysis of Performance of Local Revenue Sources ............................................................ 73
7.4 Findings of the Study related to Local Revenue Performance in LGs ............................... 76
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7.5 Recommendations to enhance the significance of Local Revenues .............................. 81
8 LOCAL SERVICE DELIVERY GAPS ............................................................................................... 87
8.1 Introduction .................................................................................................................................. 87
8.2 Service Delivery architecture .................................................................................................... 87
8.3 Major issues for Service delivery units ...................................................................................... 88
8.4 Gaps in Local Service Delivery Financing ............................................................................... 93
8.5 Proposals for financing the gap ............................................................................................. 101
8.6 Recommendations .................................................................................................................... 101
9 PROPOSED INTER-GOVERNMENTAL FISCAL DECENTRALIZATION ARCHITECTURE ............... 104
9.1 Introduction ................................................................................................................................ 104
9.2 Uganda’s Policy of Decentralisation and its challenges ................................................... 105
9.3 The FDA and Challenges in its implementation................................................................... 107
9.4 Proposals for the revised FDA .................................................................................................. 111
9.5 Implications to policy, legal and institutional framework .................................................. 119
9.6 Proposed expanded functions of the LGFC ....................................................................... 121
10 FISCAL DECENTRALIZATION ARCHITECTURE- IMPLEMENTATION MATRIX ............................. 122
ANNEXES ................................................................................................................................................ a
ANNEX 1: SUMMARY REVIEW OF FDS ................................................................................................. a
ANNEX 2: COMPENDIUM OF LEGAL FRAMEWORK FOR REVIEW ........................................................ a
ANNEX 3: LIST OF PEOPLE MET ............................................................................................................. b
ANNEX 4: LIST OF DOCUMENTS REVIEWED .......................................................................................... j
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EXECUTIVE SUMMARY
A1: INTRODUCTION
Background
In January 2012, the Local Government Finance Commission (LGFC) commissioned a
study to review the financing of Local Governments in Uganda. The study had three
broad objectives:
i. To conduct a review of the Fiscal Decentralization Strategy (FDS) that has now been
in implementation since 2002;
ii. To make recommendations and re-design Uganda’s Intergovernmental Fiscal
Decentralisation Architecture (FDA)1, and
iii. Propose measures to enhance the significance of local revenues.
This study was carried out through the examinations of 4 key areas; (i) the
intergovernmental fiscal relations which covers the grant system, (ii) the local
government annual planning and budgeting process, (iii) procedures for releasing,
reporting and accounting for grants, and (iv) the potential for improving local
revenues.
Methodology
This review is a result of a highly consultative process that covered thirteen (13) districts;
three (3) of which were hard-to-reach2, two (2) relatively new3. In each district the
review was conducted in urban councils (Town Councils and Municipalities) as well as
sub-counties. In each district the team studied service delivery units consisting of: one
school, one health centre, and one water and road delivery unit. At the national level
consultations included meetings with officials in Ministries, Departments and
Government agencies (MDAs) which included Office of the Prime Minister, Ministries of:
Finance; Local Government; Education; Health; Works; Agriculture and Water; Other
agencies of Government visited included the Uganda Road Fund; National Planning
Authority, the National Information and Communication Authority; National Agricultural
Advisory Services (NAADS) among others. The study findings and recommendations
proposed under the study were validated with the Task Force set up by the Local
Government Finance Commission to supervise the study. Further consultations have
been finalized with the Local Government Associations, Parliament and Development
Partners and a wide range of stakeholders who made their input at a National
Stakeholders’ Workshop in Kampala in August 2012.
A2: REVIEW OF FISCAL DECENTRALIZATION STRATEGY
a) Assessment of the Implementation of the Fiscal Decentralisation Strategy (FDS)
In 2002, Government of Uganda rolled out a series of fiscal reforms to improve harmony
between national and local government budget cycle and strengthen financial
accountability mechanisms and reporting under the FDS. The study deduced that while
bold efforts were made to implement these reforms, the performance was generally
mixed. Major reforms to streamline the grant system were not implemented. Below is an
assessment of the performance of key aspects of FDS over the last 10 years:
Aspects where the performance of FDS was poor
i. While FDS, a key principle was streamlining the grants by reducing them in number
through the introduction of Recurrent Transfer Budget as one recurrent transfer
mechanism with sector grant budget lines and one conditional grant per sector,
1 The FDA is the framework of policies, laws, rules and institutional arrangements governing the fiscal relations under a
decentralization framework
2 Kalangala, Kisoro and Moroto 3 New districts refers to those created after 2005
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RTB was never introduced and conditional and unconditional grants have
continued to flow under different mechanisms with the number of grants
increasing from 21 in 2001/02 to 38 to-date.
ii. Streamlining the grants by reducing their number and levels of conditions was a key
component of FDS, however, over 85% of all financing of LGs is currently under
conditional grants leaving very marginal opportunity for local fiscal autonomy.
iii. FDS called for implementation of the principle of flexibility within the grant system
to increase the amount of funding at the discretion of LGs during budget
formulation. These reforms were most critical to achieving the key objectives of
increased LG autonomy and discretion in allocation decisions. However, the
flexibility principle did not carry on beyond two years into FDS implementation
especially due to reservations by health and education sectors on the
infringement this process was having on their sectoral fiscal performance.
Aspects where the FDS performed well and moderately
i. The harmonization of the Central Government and LG annual planning and budget
cycle was an important undertaking under the FDS implementation. This
integration allowed Government to be more responsive to local needs and
streamlined budgeting in a manner that minimized wastes through an in-built LG
reporting and accountability mechanism. The challenge remains the limited
financial resources to allow LGs to engage communities especially at village and
parish levels comprehensively in the process.
ii. Adoption of a quarterly release system improved predictability of releases to LGs and
improved execution of functions in LGs albeit inadequacies in financing of some
decentralized functions;
iii. There was a robust effort to streamline accountability mechanism through the
Output Budget Tool and Form B. While it is still work in progress, this study noted
improvements overall;
There has been improvement in service delivery as a result of implementing the FDS in
most sectors. Most of the tenets of FDS were indeed well intentioned. It is therefore
recommended that the strategy is further strengthened basing on proposals on main
aspects of the re-designed Fiscal Decentralization Architecture.
A3: THE INTER-GOVERNMENT FISCAL TRANSFER RELATIONS
a) Status Quo of Fiscal relations Between Central and Local Governments
By and large Local Governments continue to be heavily reliant on the Central
Government (CG) for funding. Grants from CG to LGs contribute over 85% of financing
to LG budgets. Accordingly, their magnitude and operations are critical to the ability of
LG to deliver services effectively. There are three main grants to local governments:
i. Conditional grants which constitute more than 90% of all funding;
ii. Unconditional grants which constitute about 7% of all funding and present LGs with
discretion in spending and flexibility to move allocations within and across sectors;
iii. The Equalization grants intended as a subsidy to Districts / Local governments
lagging behind severely in service delivery indicators.
iv. In addition to these, Local governments collect local revenue which is less than 3%
of all financing.
While grants have grown in nominal terms over the past 10 years, most of this growth
has been in wages with no real growth in non-wage recurrent grants. LG grants have
not shared in the growth in the national revenues in the same way as Central
Government. Overall while the national budget has grown from Shs.2.9 Trillion in
2003/04 to 10.1 Trillion in 2012/13 (a growth of over 248%); transfers to LGs have only
grown from Shs.741.5 billion to 1.64 Trillion (a rate of 43.4%). After the suspension of
Graduated Tax (GT) during the 2005/06 Financial Year and later its abolishment in 2008,
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local government revenues plummeted and over the last six years districts have
become much more reliant on the centre for financing- making distant the reality of
real fiscal autonomy – a fundamental basis for decentralization policy.
b) The Need to Review the Grant System to protect financing of Local Governments
In light of the status quo described in (a) above the study recommends ways in which
the grant system can be improved:
i. There is need raise the profile of Local Governments’ financing and decentralized
service delivery at the highest levels of Government i.e. at Cabinet and
Parliament;
ii. There is need for amendment of laws especially the Budget Act and the Public
Finance and Accountability Act with aspects that will require Cabinet /
Parliament interaction on LG service delivery during budget cycle;
iii. There is need to strengthen further the analytical function of LGFC to negotiate,
advise and monitors LG financing and service delivery;
iv. To protect local investments, there is an imperative need to increase funding
(unconditional grants) for supervision and monitoring functions so as to reduce
service failure risk.
The study also proposes rules under the re-designed FDA requiring all financing for LG
functions to be implemented within the grant system in a form that ensures
transparency and equity.
c) International Best Practices on Intergovernmental fiscal relations
To further protect the financing of LGs, the study presents options to consider basing on
international based practices as highlighted below that Uganda can study and
emulate:
i. THAILAND:The constitution mandates that revenue assignment to LGs be at least
20-35% of national total revenue. In 2011, revenues for LGs under this arrangement
stood at Baht 99.8billion (13.3%) of the total revenue having grown by over 330%
between 2001 and 2011. By law the share of revenue for LGs is determined as a
target. Currently the target is to make it 35% of the total government revenue.
ii. KENYA:Articles 202 and 203 of Kenya’s new Constitution (2010)provide for
equitable share of 15% of nationally raised revenue between LGs. In addition to
this, the Central Government provides conditional and equalization grants.
iii. CHINA: China has five levels of government composed of Central Government,
provincial/municipal governments, city governments, County governments and
Prefectures. 75% of VAT goes to Central Government and 25% to other
governments basing on a revenue sharing formulae; 40% of Enterprise Income Tax
(tax paid by railways, postal services by state industrial commercial body,
agriculture bank of chine etc) goes to LGs while 40% of individual tax income, oil
and other resource tax, stamp duty among others goes to LGs with 36% going to
other government branches.
A4: ANNUAL PLANNING AND BUDGETING; RELEASES AND ACCOUNTABILITY MECHANISMS
a) Harmonization of the LG and CG Planning and Budgeting Cycles
The LG annual planning and budgeting cycle has improved tremendously over the last
10 years meeting some of the requirements agreed to in the FDS. LGs feel the cycle is
relatively adequate to support their budget preparation process. However, delays in
issuance ofbudget guidelines and Indicative Planning Figures (IPFs) by Central
Government encumber the proper implementation of cycle limiting the time available
to LGs for consultations during their budget formulation. The study however
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recommends a review to provide for early start and timing of negotiations on
conditional grant guidelines to further improve the process.
b) Reporting
Over the FDS period, the Ministry of Finance Planning and Economic Development
(MoFPED) rolled out the Local Government Output Budgeting Tool (LG OBT) which has
gone a long way in streamlining reporting on expenditures as approved. Further-on,
using Performance Contract (Form B), reporting is more output oriented and has
become timelier. The study notes that sustained training of all department staff is vital in
ensuring success of this reform. The MoFPED is called upon to sustain reformation of
these tools especially the incorporation of sector-specific qualitative reporting needs.
a) Accountability mechanisms
Government has also equally put efforts to improving accountability mechanisms in LGs
with improvements in capacity and more regular audits. However, (i) there are still
significant delays in release (up to 4 weeks sometimes before receipts by service
delivery units) leading to delayed expenditures and un-spent balances at the end of
the financing year, (ii) under UPE and USE capitations and NAADs need to be
synchronised with the service seasonal cycles (although reviews have been done to
address this), (iii) weakness in staffing and facilitation of internal audit units have limited
the value of their reports, and (iv) support to Local Councils have not been adequate
to enable them exercise their oversight roles effectively.
A6: LOCAL REVENUE ENHANCEMENT
a) Local Revenue Performance
Whereas there have been several effort to improve local revenue collections levels,
their contributions to the LG budgets has remained low – at less than 3% for districts and
slightly higher for urban areas. Assessments have also shown that all local revenue
performance remains below 50% of total potential. This is largely attributed to the weak
institutional arrangements for revenue administration. The study also finds that changes
in sources, particularly with the abolishment of graduated tax, have reduced the
viability of revenues for LGs, and that the existing legal framework does not fully enable
LGs to collect revenues. In an attempt to compensate this shortfall, Government
introduced two new sources of revenue: the Local Government Hotel Tax (LGHT) and
the Local Services Tax (LST). The two newly introduced taxes have been unable to fully
compensate for graduated tax creating a financing gap of over shs.60 billion at the
time of abolition.
b) Recommendations to enhance the significance of Local Revenues
i. Design a National Local Revenue Policy supported by enabling clauses in the Public
Finance Act (once finalised) to guide local revenue generation and prescribe
punitive measure for negative political action that frustrate enforcement of local
revenue collection.
ii. Evolve administrative measures to improve efficiency of revenue management
through establishment of revenue management departments at the district level;
iii. Review the legal framework to enable more effective revenue realization
especially on addressing exemptions in LST, property rates, permits and user
charges;
iv. Review the current Royalties Act and guidelines;
v. Look at improving revenue sources but also enhancing the ability of LGs to
support Local Economic Development; and municipal bonds which ultimately
broadens the resource base for LGs. New sources proposed include:
o Property Service Tax [PST]that may range from Shs.30,000 to 100,000 per year
payable on a quarterly basis. This measure should be subjected to the
provisions of the fifth schedule part IV section 13(0) of Cap 243.
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o A solid waste management tax should be introduced in municipal councils
and Town councils to be assessed by respective LGs. A maximum amount
allowable may be determined by the LGs through a consultative process.
o Introduce a Residence Tax on permanent residential houses of between
Shs.10,000 and Shs.30,000 per year. This source alone would generate 30bn at
a minimum projected for 3million houses in the country.
A7: CLOSING DECENTRALIZED SERVICE DELIVERY FUNDING GAP
In general, as a measure to improve financing and its impact on services delivery,
priority should be given to gradually stepping up financing under the grants system to
local government to bring it more in line with the service delivery requirements. Special
emphasis should be placed on the adequacy of financing under the unconditional
grants to include the management functions of planning, supervision and monitoring of
service delivery as well as auditing, to enable Councils to execute their roles, and to
maintain LG infrastructure stock. This study estimates a financing gap of about 54%
under these functions translating to about Shs.2.1bn for an average district.
A8: THE REVISED FISCAL DECENTRALIZATION ARCHITECTURE
The proposed revised FDA as an output of this review aims to strengthen fiscal
decentralization by protecting and promoting local government financing, enhancing
orderliness and control in the management of intergovernmental fiscal relations,
strengthening LG capacity for supervision / monitoring of service delivery and
increasing discretion in local decision making. Key principles to guide the FDA shall be:
adequacy in financing of decentralized service;transparency and accountability,
predictability, equity, incentive to raise more revenues and avoid waste.Institutions will
be assigned roles clarifying their contributions to the implementation of the revised FDA.
Specific responsibilities relating to FDA include the following;
i. Parliament: will provide oversight over the implementation of the FDA and will protect
LG financing.
ii. Cabinetwill oversee the implementation of the FDA ensuring compliance of all MDAs
in its use.
iii. Office of the Prime Minister (OPM)will provide oversight over the implementation of
the FDA within guidelines set by Cabinet. OPM will resolve any policy, institutional
and operational conflict in the implementation of the FDA provisions.
iv. The Minister of Finance; shall be the champion, political head and owner of the
FDA.
v. The Minister of Local Government has the political mandate for implementing the
policy of decentralisation.
vi. Sector ministries shall remain the centres for policy formulation and monitoring.
vii. Development Partners (DPs): The Joint Assessment Framework (JAF) will be used to
monitor FDA reform implementation for the purpose of dialogue with the DPs on
local government financing
viii. Local Governmentswill implement the policy of decentralization through support
of planning, reporting and accountability of service delivered to citizens.
A9: THE LAWS AND REGULATIONS TO BE REVISED
The following laws will need to be revised as the recommended proposed in this study
are implemented
i. Article 193 of the Constitution of the Republic of Uganda
ii. Local Government Act Cap 243, First Schedule&Fifth Schedule Part 1 and Part 2
iii. Public Finance Bill (Draft)
iv. Budget Act
v. Royalties Act
vi. Local Government Finance and accounting Regulations
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1 BACKGROUND AND RATIONALE
1.1 Background
The 1995 Constitution of the Republic of Uganda (as amended), and the Local
Government Act (CAP 243) have devolved service delivery mandates to LGs. Line
ministries, under this framework retained the mandate of setting national priorities,
standards regarding the delivery of service, support supervision and mentoring of Local
Governments.On the other hand Local governments (LGs) have been, by law, preparing
own development plans and budgets, mobilizing their locally raised revenues (LLRs),
receiving releases from the Central Government (CG) to facilitate funding for recurrent
expenditure and development.
The Government of Uganda (GoU) is committed to reviewing Local Government financing
as one of the prior actions to be implemented within the Joint Assessment Framework. The
rationale is to achieve an effective and efficient financing mechanism for LGs that
addresses their core mandate and functions including service delivery. As one of the core
reforms to guide fiscal decentralization, a study was done in 2002 that designed Uganda’s
Fiscal Decentralization Strategy (FDS) which covered two inter-related dimensions: (i) the
division of spending responsibilities and revenue sources between tiers of government and
the amount of discretional power given to LGs to determine their expenditures, revenues in
delivery of decentralized services.
1.2 Rationale for the Review of Local Governments’ Financing
Over the years, significant progress has been made in the implementation of the
Constitutional provisions for local government financing. In the early years, this saw a steep
rise in grants from Central Government, rising in nominal terms, from UGX.37miliion in 1993/4
financial year (FY) to over UGX.244bn in 2000/01 FY. This has since further risen to over 1.6
trillion in 2011/12 FY. This steady rise reflects Government’s continued commitment to
financing local government services. As a result, the DPSF notes4, the level of service
delivery has increased tremendously. LG own source revenues have plummeted to
below3% contribution to district budgets following the scrapping of graduate tax after the
2005/06 FY.
However, there is widespread concern that LG financing is not sufficient to meet the level
of demand for service delivery. The 7th Joint Annual Review of Decentralisation noted that
while transfers were increasing in nominal terms, the trend in the key service sectors of
education, health water and roads “was declining and negatively affecting services in
LGs”5 particularly as the populations and inflations were rising rapidly. A recent paper on
Transforming the Uganda Public Service6points to the increasing inadequate funding of
local governments and the impact on their capacity to deliver key services. A 2009 study
by MoFPED - “Decentralization in Uganda-Does it improve service delivery” noted that
inadequate funding in the face of decentralization “had limited improvements to service
delivery”. The National Development Plan (NDP) noted the need to ensure adequate
financing for priority public service delivery7. The JAF II also agreed on an undertaking to
carry out holistic review of local government financing. Other assessments have expressed
4Decentralisation Policy Strategic Framework, Achievements of Decentralisation, page 22 5 7th Joint Annual Review of Decentralisation, 5.7(a) 6 Policy paper on the transformation of the Uganda Public Service, June 2010
7 Strategy 8 under the Public Sector Management thematic area (NDP, page 349)
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similar sentiments.A second concern was the impact of changes in composition of local
government financing on its efficiency and accordingly effectiveness in supporting service
delivery. Various assessments8 have also pointed to reducing proportion of own source
revenues9 to the LG budgets which has increased the dependency of LG financing on
Central Government and further reduced discretional capacity of local decisions. In the
face of this dependency, the growing dominance of conditional grants has further
constrained LGs in aligning allocations to local priorities – a key tenet of the
decentralization policy. Besides, it also emerged that this structure of financing was
actually impacting negatively on efforts to expand local revenues levels10.
1.3 Objectives and Scope of the Study
After ten (10) years of implementation of the FDS, it was imperative to review the state of
local government financing focusing on its adequacy, efficiency in its delivery,
management and accountability. The objective of this study was to review financing of
local governments in Uganda with a focus on the match/ mismatch of financial resources
with decentralized responsibilities and the management and accountability for
decentralized service delivery. Specifically, the study requires that the following three
areas have to be addressed:
a) Reviewing implementation of Fiscal Decentralization Strategy (FDS) to-date;
b) Re-designing the current Intergovernmental Fiscal Decentralization Architecture
focusing on financial adequacy, management and accountability for decentralized
services; and
c) Presenting recommendations on measures to enhance the significance of local
revenues.
In addressing the areas identified above, the study limited itself to four (4) study areas
namely;
a) Undertaking a review of the Intergovernmental Fiscal relations (IGFR) between
central and local governments and between layers of local governments. This
review also covered an assessment of the implementation of the FDS and its effect
of the IGFR
b) Undertaking a review of the Annual Planning and Budget Cycle for local
governments and its interaction with the national planning and budgeting processes
c) Undertaking a review of the release, reporting and accountability mechanisms for
local governments including adequacy of institutional mechanisms; and
i. Undertaking an examination of opportunities to enhance revenue collected by LGs.
1.4 Organization of the Report
The report is divided into 10 chapters; This chapter 1 (one) has highlighted the background
and rationale and Chapter two discusses approach and methodology that was used in
the study while Chapter 3 reviews the implementation of the Fiscal Decentralisation
Strategy. Chapters 4 to 7 present the findings under each of the component of the study
as outlined in 1.3 above. Chapter 8 presents an analysisof local service delivery while
Chapter 9 presents the re-design of the Fiscal Decentralisation Architecture (FDA). Chapter
10 is a display FDA implementation matrix showing timelines for implementing various
recommendations of this report and the responsibility centres. The report ends with
appendices showing the level of consultation done in arrival at the study results.
8 For example, NDP (8.14.2, (v)) 9 OSR are estimated to have fallen to as low as 3% despite various national interventions in recent years including introducing Local
service tax and LG hotel tax- Technical Note on the Review of Local Government Financing, March 2011 10 Fiscal Decentralisation, the way forward (6.9), 2000
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2 APPROACH AND METHODOLOGY
2.1 Introduction
The Local Government Finance Commission utilizing basket funding under the Second
Financial Management and Accountability program (FINMAP II), contracted EFICON
Consulting Ltd, a regional Consultancy firm based in Kampala to undertake the review of
Local Government Financing focused on the theme: “Adequacy of financing, effective
management and accountability for decentralized service delivery as well as
enhancement of local revenues”. This study was supported by a thorough review of
background information mainly since 1993 to-date relating to a situational analysis of
financing of LGs; scrutiny of the functions and assignments to LGs as per the LG Act Cap
243; status of the level of efficiency and effectiveness of service delivery and challenges
and constraints that warrant a review in Uganda’s decentralization system.
2.2 General Study Approach
The consultancy for the review of Local Government financing took the following four
major stages:
a) Consultants held preliminary meetings with key stakeholders at the national level and
reviewed key literature around fiscal decentralization that culminated in the
elaboration of an Inception report. A review of existing literature was undertaken to
inform the study of the background including on policy, institutional and legal
aspects, to clarify the problem areas and explain past efforts in addressing key
problem areas. The list of documents reviewed in this process is provided in Annex 4
of this report. LGFC instituted a Taskforce to guide this study. The taskforce drew
membership from various stakeholders including Urban Authorities Association of
Uganda, Uganda Local Governments Association, Ministry of Finance Planning and
Economic Development, Ministry of Local Government, National Planning Authority,
and Local Government Finance Commission among others;
b) The Consultant designed study tools and questionnaires to obtain data from national
and local government respondents. This process was preceded by a pre-test of
study questionnaires in Entebbe Municipality and Wakiso District Council. The
questionnaires were improved following the pre-test and used to gather information
in study LGs; 12 districts, five (5) Municipal Councils, four (4) Town Councils and seven
(7) Lower Local Governments as shown in the Table 2.1 below. The study also
expanded to service delivery points in health, education, water and roads. The LGs
included in the study were identified using the following criteria:
A sample big enough to be statistically significant to represent all 111 LGs in
Uganda;
District representation from all four regions of Uganda;
Representation of a mix of urban (town council, municipalities) and rural LGs;
At least three (3) LGs denoted as ‘hard-to-reach’; and
A combination of LGs in existence before 2005 and newly created LGs
Page 9 of 150 FINAL Draft Report
Table 2.1 Showing LGs and LLGs covered under the study Local Governments Municipal
Councils
Town Councils Sub Counties
1. Wakiso
2. Masindi
3. Moroto
4. Kalangala
5. Kisoro
6. Mpigi
7. Soroti
8. Kapchorwa
9. Namayingo
10. Arua
11. Oyam
12. Luweero
13. Kiruhura
1. Entebbe
Municipality
2. Arua
Municipality
3. Lira
Municipality
4. Soroti
Municipality
5. Masindi
Municipality
1. Mpigi Town
Council
2. Namayingo
Town Council
3. Kiruhura Town
Council
4. Kapchorwa
Town Council
1. Kammengo Sub County
– Mpigi Local
Government
2. Acaba Sub County-
Oyam
3. Buswale Sub County –
Namayingo LG
4. Nadunget Sub County –
Mororo Local
Government
5. Wakiso Sub County –
Wakiso Local
Government
6. Logiri Sub County – Arua
Local Government
7. Kamdini Sub County-
Oyam Local
Government
Note: Prior to the start of the study, a pre-test of study tools was conducted in Wakiso
District Local Government, Wakiso Sub-country and Entebbe Municipality before
being rolled-out nation-wide. It is important to note that while it would have been
desirable to cover a larger sample, the study focus was inclined to the structure,
systems and modalities of LG financing. In this case therefore, 13 districts visited were
meant to provide evidence case studies.
It was important for the study to be conducted at LG level and to link the LGs to the
broader sector and national local government issues related to decentralized
service delivery but also for the consultants to get first-hand accounts of the status of
implementation.
c) Data collected and analysed was processed into a draft report. The analysis of
findings was triangulated with sector Ministries, Departments and Agencies (MDAs)
as well as LFGC and MoFPED before finalizing the report; and
d) Final Draft report was validated at a stakeholders’ workshop and submitted to the
LGFC.
2.3 Sector Case Studies
To better understand and analyze the current grant system, inter-governmental fiscal
relations, and the challenges related to fiscal decentralization, all key sectors of
government were consulted. While all sectors were included in the review, particular
emphasis was given to education, health as well as water and roads sub-sectors to
examine the following issues regarding the FDS:
a) The optimal in-sector allocation between central and decentralized budgets;
b) The current allocation criteria for LG budgets and the impact on the broader
development issues such as (population, poverty incidence, effective administration,
etc.) in regards to expenditure assignments and relevancy of grant parameters;
c) The service delivery units in LGs to determine what they currently receive vis-à-vis the
budgets and identify gaps in financing and the related accountability mechanisms;
Page 10 of 150 FINAL Draft Report
d) The challenges and proposed recommendations for broader governance issues
such as management, operations and maintenance; and
e) Options for local financing of service delivery.
2.4 Data Analysis and Validation of Findings and quality assurance
The study utilized three levels of data:
a) Secondary data notably District Budget Framework Papers, District Final accounts,
and District Development Plans; Sector Grant Guidelines and Annual Sector Reviews;
Local Government Finance Commission Resources (including the database) and
other literature as elaborated in Annex 2 of this report.
b) Primary Datawas collected during structured and semi-structured interviews in
selected districts and with sectors at the national level and later triangulated as
appropriately for the analysis made in this report.
Qualitative and quantitative data approaches were adopted. Information from field
interviews (primary data) was then analyzed in lieu of the content analysis described to
generate results and findings presented in this report. The study also used observation,
photography, and videography to record and strengthen survey findings. Guided by the
terms of reference, the study adopted a thematic approach in reporting the findings.
Each of the chapters in this report is a unique aspect of the survey terms of reference.
Data collection and analysis was cognizant of these themes as presented in sub-section
1.3.
To ensure the relevance of the findings and recommendations of this study and its
implementation thereafter, oversight of this study has been provided by Government
through the Local Government Finance Commission (LGFC) at the policy and technical
level. Input from Development Partners (DPs) has been channelled through the Joint
Budget Support Framework (JBSF) coordination mechanism that also included consultation
of non-JBSF DPs. At the policy level, the study has been chaired and steered by the PS/ST
MoFPED with policy steering members consisting of a task force with representation from
Local Government Finance Commission, Ministry of Local Government, Ministry of Finance
Planning and Economic Development, National Planning Authority, Office of the Prime
Minister, Uganda Local Governments Association, Urban Authorities Association of
Uganda, Ministry of Public Service, as seconded from line ministries.
The task-force has reviewed the findings and recommendations of the consultants and the
Policy Steering Committee will take action through appropriate Government of Uganda
(GoU) mechanisms through the LGFC and MoFPED and then on to Cabinet. Validation of
this report has been done with presentation and reviews made with the following
stakeholders:Local Government Finance Commission;Ministries of Local Government and
Ministry of Finance Planning and Economic Development; National Planning Authority;
Uganda Local Governments Association and Urban Authorities Association of Uganda;
Development Partners; and Other sector level and MDA representatives through National
Consultative Workshop.
2.5 Study Limitations
The lack of a robust process for the continuous updating of data at all levels of
government continues to be a limitation for studies of this nature. While the consultants
were supported at the national level to obtain all needed information, it is apparent that
data availability at both HLGs and at LLGs remains a serious challenge.
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3 REVIEW OF FISCAL DECENTRALIZATION STRATEGY
This Chapter provides a brief review of the decentralization policy framework and the
Fiscal Decentralisation Strategy (FDS) outlining its motivations and goals as well as the
progress in its implementation. The Chapter also discusses the conditions warranting the
performance review and makes a case for Government to continue implementing the key
principles contained in this strategy.
3.1 The Uganda Decentralization Policy
Uganda’s current decentralization framework traces its roots to the enactment of the
Resistance Councils and Committees Statute11. The Statute introduced the Resistance
Council system, which in effect transferred authority to plan, make decisions, administer
local justice and provide services to the communities. Reviews of this statute and other
subsequent instruments led to the development and adoption of the 1995 decentralization
policy note12. The objective of the framework was to make local governments effective
units for local democratic governance. The 1995 Constitution further consolidated the
decentralisation policy, ensuring its application at all Local Government levels13. The Local
Governments Act, 199714, further elaborated the establishment of the LG system and
structures, responsibilities for service delivery, LG revenue sharing arrangements, the
election procedures for local leaders, and the responsibilities for local service delivery.
Uganda’s decentralisation policy was premised on the devolution principle transferring
responsibilities for decision making and delivery of services to local governments which
elect their own councils, and allowing these councils autonomy in making investment
decisions. The devolution principle was also to foster a participatory approach with
communities playing a direct role in identifying their development priorities, in planning
and in formulating their programmes. Functions for which responsibilities were devolved to
local governments are outlined in the Local Governments Act (Cap243) – second
schedule. The decentralisation framework also identifies sources from which local
governments may obtain revenues to finance these functions. These include: (a) own
source revenues, (b) grants from Central Government, (c) contributions from donors or
other agencies including NGOs, and (d) borrowing.
Significant progress has been achieved in implementing the decentralization policy in all
aspects; political, administrative and financial. However, in early 2000s, the Government
became concerned about the emerging trend of fiscal transfers and the impact they
were beginning to have on the critical elements of the devolution principles namely local
autonomy, participation and accountability in decision making. As local government
financing evolved, grants from Central Governments had become the dominant source of
financing accounting for over 90% of local government revenues. This led to a high
dependence of local governments on Central Government15. The growth in transfers from
national budgets was largely in the area of conditional grants – accounting for 67% in
11 Resistance Councils and Committee statue of 1997 12 See Chapter 2 of the Decentralisation Policy Strategic Framework, Nov 2006 13 The Local government system has up to four levels of local governments including districts or city councils, municipalities, sub-
counties and town, parishes or wards, and villages or cells 14In this report, the LG Act 1997 is quoted synonymous to LG Act Cap 243. 15 LG PFM Assessment, 2005
Page 12 of 150 FINAL Draft Report
2000/0116. Conditional grants did not only grow in volume of resources but in diversity as
well; by 2000, the number of conditional grants had grown to 21. In comparison, the un-
conditional grant was at 32% of transfers from the national budget and even smaller was
the equalisation grant at 1%.
The excessive growth in conditional grants was limiting LGs’ autonomy in planning and
decision making. It was affecting local governance and development and impacting
sustainable implementation of the poverty alleviations commitments under the Poverty
Eradication Action Plan (PEAP)17. LGs experienced excessive administrative overheads as
they implemented multiple procedures, bank accounts and lines of reporting introduced
as a result of increasing number of conditional grants. Central Government was equally
affected as sector ministries had to dedicate more time and resources to accountability
procedures associated with the grants including having to deal with increasing loads of
quarterly reporting from local governments.
3.2 Imperatives and features of the Fiscal Decentralisation Strategy
The adoption of the Fiscal Decentralisation Strategy (FDS) by the Government, in 2002, was
to address these concerns and in particular, to streamline transfer modalities to increase
local autonomy and participation “whilst reinforcing the incentives to improve local
governance and service delivery”18.
The objective of the Fiscal Decentralisation Strategy (FDS) was:
“To strengthen the process of decentralisation in Uganda through increasing local
governments’ autonomy, widening local participation in decision making and streamlining
of fiscal transfer modalities to local governments in order to increase the efficiency and
effectiveness of local governments to achieve PEAP goals within a transparent and
accountable framework”.
The FDS set two broad objectives: a) to increase local government autonomy and
widening participation in decision making, and (b) to improve the effectiveness of the
local government programmes through increased effectiveness, transparency and
accountability in expenditures (see Box 1 below). The main strategy was to streamline the
funds transfer mechanisms channelling grants through two systems; the Recurrent Transfer
Budget (RTB) system and the Development Transfer Budget (DTB) system, to improve the
balance between discretion and non-discretionary financing of local governments. The
FDS was to lead to an overall reduction in the number of conditional grants while at the
same time providing increased flexibility and the participation of LGs in decisions of
allocations of these resources. Accordingly, sector policies and procedures governing the
transfers during the budget cycle, as well as the financial and accounting regulations were
to be reviewed to support the implementation of the new transfer mechanisms
Box 3.1: Key focus areas of FDS
Key Objective I: Increasing Local Government autonomy
16 The growth in conditional grants was in part accounted for the Government’s commitments under the Poverty Action Fund itself
which was established to direct debt relief and donor resources to key poverty alleviation sectors with the majority of services
located in local governments 17 The PEAP was Uganda’s policy framework with a major focus on poverty alleviation. This was replaced by the National
Development Plan (NDP) in 2010 18 Terms of reference – “Fiscal decentralization– the way forward”
Page 13 of 150 FINAL Draft Report
Promoting and widening participation in decision making of local government, to
enhance the efficiency in allocation of resources towards the achievement of PEAP
Goals in line with local priorities This will be achieved by:
Increasing the discretionary powers given to local governments in allocating
resources towards both recurrent and development activities;
Promoting increased participation of all levels of local government in the
decision making process;
Providing direct financial incentives for local governments to increase local
revenue, and ensuring that local revenue contributes meaningfully to local
development; and
Harmonising the central and local government planning and budgeting cycles
to ensure that local needs and priorities do feed back into the national budget.
Effectiveness of Local Government programmes
Improving the effectiveness of Local Government Programmes through
strengthening the effectiveness, transparency and accountability of local
government expenditures. This will be achieved by:
Streamlining the systems of transferring funds from the centre to local
governments;
Developing a strong framework for financial accountability and increasing the
focus on book keeping;
A simple system of reporting on financial and output information;
Rewarding those local governments which implement programmes well, in
adherence to the legal and policy framework, and sanctioning those which do
not; and
A more co-ordinated and better targeted system of monitoring and mentoring
local governments by Central Government.
3.3 Experience in implementing the FDS
The experience in implementing the FDS has been mixed. Ten (10) years after the launch
of the FDS, progress in its implementation has been strong in some areas, slow or less
satisfactory in others.In particular, the key reforms that were to lead to achieving the key
objectives of discretion and participation in allocations decisions under the FDS have not
been implemented. The box below lists some of the views from stakeholders sectors on the
implementation of the FDS
Box 3.2: Sector view on implementing the FDS
Implementing flexibility / discretion
The FDS require the Government to implement the flexibility principle to increase the
ability of LGs to allocate grants to local needs.
Education:
- Flexibility was not helping. The Ministry had to pull out of flexibility as the sector
was becoming a net looser – because of its big budget, and it was not likely to
meet its targets
Water :
- There was not enough sensitization and the sector felt they were losing out to
other sectors
Local Governments
- Implementation of flexibility was to depend on gradual expansion of capacity but
this was not implemented
Reporting Arrangements
Page 14 of 150 FINAL Draft Report
The FDS require government to introduce harmonised reporting to reduce the burden
experienced by LGs in implementing multiple reports required by Central
Governments ministries. The use of “Form B” reporting under OBT has recently been
introduced for this purpose
Education
- LGs submit quarterly financial monitoring reports to MoFPED which are sent to
MoES. Compliance is less as was the case where LGs were sending to sectors and
then LMs send to MoFPED. Also, OBT reports are good but limited in information
provided to sectors. Sectors unable to use them for assessing service delivery
qualities.
Water
- OBT reports do not provide sufficient details on indicators to facilitate monitoring
service delivery. The indicators used by LGs in Form B are not in conflict with the
reporting requirements of the sector
LGBC / LGROC
The FDS requiredGovernment to establish new committees to improve coordination
between central and LGS on LG financing issues. Sectors had the following views on
the two committees
Water
- LGBC and LGROC are not very visible in the budget process and have not been
very effective
Education
- Interaction takes place with LGBC but its role in the budget process is not clear
Gender
- LGBC has not been helpful in advocating for increases in grants or for integrating
donor support in the sector
Institutional arrangements in the implementation of the FDS
The FDS assigned responsibilities to each key institution to implement reforms that
were introduced
Local Governments
- FDS was failed by line ministries. Sectors became strong as they received more
control over financing and as donors directed their support to them in the context
of the sector wide approach (SWAP). There is need to address the resistance of
line ministries if FDS is to work
Status and performance on key goals of the FDS
Table 1: Performance on key goals of the FDS
Objectives Performance
1. Streamlining the Grant system
The key objectives were to reduce
the number of grants to two (2)
per sector (RTB/DTB) and increase
the level of discretion and flexibility
to allocate resources within the
sector grant. Sectors were review
• Grading: Low
• Rather than reduce the number of grants more
conditional grants have been created since the
FDS came in effect
• Guidelines for sector policies on conditional
grants as well as on operational modalities under
the FDS were issued to sectors. However, sector
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Objectives Performance
sector policies to provide one set
of conditions and one IPF
did not review policies to reduce the number of
grants or to transform them to conform to FDS
modalities
2. Flexibility
Sectors were to identify a portion
of conditional grant (initially 10%
and 50% for PRDP) under the PAF
services which was to be placed
in a common pool. Local
governments would then exercise
flexibility over this pool allocating
to priorities of their choice within
the PAF services. Grant ceilings
were to be adjusted to reflect the
LG allocations from the pool. The
proportion to be placed in the
pool was to be increased over
time as local governments’
capacity and performance
improves.
Grading: Low
Flexibility as was conceived did not work. Flexibility
between sectors was introduced for PAF recurrent
grants in 2006/7 and abolished by Cabinet in
2008/09. Development grants did not adopted the
LGDP modality which was to provide greater
flexibility to LGs:
The Education sector objected as in its words, “it
was becoming a net loser” and was falling back
on its targets. In sector reviews, it was clear other
sectors, including Water, were also equally
apprehensive about losing their levels of
financing.
The expansion in the number of conditional
grants increased the focus on detailed outputs
and therefore reduced the opportunities to
participate in flexibility.
“Flexibility” was not fitted in the existing cycle.
Adjustments in IPFs were not made timely by
MoFPED to reflect changes by LGs. This meant
the level of resources in the flexibility pool could
not be ascertained until late. This rendered the
process useless
However, beginning 2011/12, the PRDP which is
multi-sector grant, adopted a flexible approach
based on the LGDP/LGMSD concept. Beneficiary
LGs will now have the flexibility to determine their
sector allocations of within the PRDP ceiling
which is then fed back to the national planning
process
3. Harmonising annual planning
and budgeting process
Harmonising the central and local
government planning and
budgeting cycles to ensure that
local needs and priorities are fed
back into the national budget
Grading: High
The LG planning and budgeting processes were
reviewed to feed into the national process. HLG
Guidelines for planning and budgeting were issued
and training provided. As a result, better links have
been established between national and local
government budget process and between LG
budgets and work-plans. This is supported by the LG
BFPs and the Output Budgeting Tool (OBT). However,
capacity building efforts will require to continueto
enable better utilisation of the OBT and to improve
the accuracy and utilization of information recorded
by it.
Given that LGs depend on the national budget
process for up to 95% of their revenues, the delay in
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Objectives Performance
issuing budget guidelines by Central Government is
major constraint to the proper implementation of the
LG budget preparation process.
4. Increasing local participation
Promoting increased participation
at all levels of local government in
the decision making process.
Participation was to incorporate
the lower local governments in the
planning and accountability
processes.
Grading: Moderate
The annual planning and budget process for local
governments were reviewed to incorporate lower
level planning and to synchronise them with the
national planning and budget process. However,
there are factors that continue to constrain
participation among them:
the low level of financing for this process; LGs at
all levels often do not have the financing to
enable the levels of consultations on investment
activities and to report back to communities;
the limited discretion means that LGs are
constrained to implement priorities and
objectives provides by sectors. This provides very
limited opportunity for dialogues at LGs; and
Delays in issuing budget guidelines and IPFs have
often led to a reduction in the amount of time
available for participation and dialogues for LGs.
5. Releases
Introduce monthly releases and
quarterly reporting for recurrent
transfers and quarterly releases
and reporting for development
transfers
Grading: moderate
The release system has been considerably
transformed from monthly to quarterly for all transfers
except for salaries. Quarterly reporting is necessary
for quarterly releases.
However, major delays remain and predictability is
still low (see Chapter 6)
6. Harmonizing reporting
Putting in place a simple system of
reporting on financial and output
information reducing the burden
on local governments to respond
to different reporting requirements.
Key implementing agencies
MoFPED / Sectors
Grading: Moderate
FDS formats for reporting were issued linking financial
to performance data. The recent introduction of the
Performance Form B builds on earlier efforts. Form B
includes reporting sections for each sector. It also
combines both financial and performance reporting
and has been implemented across all HLGs.
The survey reveals that most sectors continue to
require sector specific reports because Form B does
not provide enough details to meet their monitoring
purposes. In the same way, in recent years, the
Uganda Road Fund has also introduced its own
reporting formats to link its disbursements better to its
processes. However, in line with the new guidelines
on releases, sector specific reports are not to be
used for the purpose of releases.
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Objectives Performance
7. Financial Accountability
Key Implementing agencies
MoLG / MoFPED
Developing a strong framework for
financial accountability and
increasing the focus on book
keeping.
Grading: High
Whilst the RTB/DTBsystem was not implemented, the
number of bank accounts for each HLG has been
reduced to 12. Financial accountability systems in
local governments have greatly improved. New
financial and accountability regulations and
manuals were introduced in 2007. Further,
automated financial management systems have
been implemented in 14 LGs. The internal audit
function has improved, and external audits for all
districts and municipalities are up-to-date.
3.4 Conditions affecting the implementation of the FDS
The section below enumerates some of the key conditions identified to have influenced
the performance of the FDA above
a) Institutional roles
Lead role: The FDS stipulated the roles of various Central Government institutions in its
implementation; however, it was not categorical on the overall leadership – the
Champion. Rather implementation of FDS was to be coordinated through committees; the
Local Government Budget Committee (LGBC) and the Local Government Release
Operations Committee (LGROC). For this matter, the FDS remained largely external to
existing institutional mechanisms and not properly integrated within existing processes and
systems. It should be noted that progress in implementing activities that were more aligned
with existing institutional roles was more satisfactory than where cross-institutional effort was
required.
LGROC and LGBC committees have not been very effective in their coordinating function.
There were delays in establishing the committees, following the passage of the FDS. This
gap led to a loss in the momentum of implementation. Moreover, support for the
functioning of these Committees was not clarified. The LGROC met only in joint sessions
(three times) with the LGBC between 2003 and 2008 and even then, these meetings were
not chaired by MoFPED. It has only become more active in recent years particularly as
Form B was being introduced. The LGBC has itself performed much better and has been
successful in championing the harmonisation of the LG annual planning and budgeting
framework, including developing guidelines for the LG process, the LGBFP and sector
guidelines. Sectors have also found the LGBC to be very helpful in following up on
LG/sector issues for inclusion in the national BFP. However, the LGBC has been less
effective in lobbying for the implementation of some of the major FDS reforms such as
streamlining grants.
MoFPED and the FDS: The FDS did not gain the profile within the MoFPED that was assumed
during its design. The LGROC, which was to be chaired by MoFPED, did not function as
planned. The intention was that the Ministry would also strengthen its Decentralization
Section to support the LGROC and fiscal decentralization in general. This process did not
happen; for a long time, the section, headed at principal level, had less than three staff
and was clearly overwhelmed by the level of work in relation to releases. Importantly,
assigning MoFPED to head a the LGROC which focussed on day to day operation and less
on strategic issues may have limited its interest and been responsible for the low profile of
the FDS within the Ministry.
Page 18 of 150 FINAL Draft Report
Sector Ministries: in 2002, at the time of passage of the FDS, sectors were a relatively new
creation, few in number and still weak internally some with no sector working groups
(SWGs). Over the last 12 years, sectors have greatly expanded in number, established
internal structures and have become strong centres of planning, decision making and
implementing sector policies. Sectors, as a result, have become critical centres of power
attracting development partners and other groups.
However, as sectors developed, there was insufficient guidance on integrating the FDS
into their processes; the rules for defining new transfers have not been clear and there
were no mechanisms to sanction non-compliance with the FDS modality (see Box 3.2
below). Accordingly, the rise in the number of grants and less willingness to implement the
provisions for streamlining grants is partly attributed to the weak integration of the FDS in
the sector processes. Moreover, sectors do not see a clear incentive to implement these
reforms since they see themselves to be responsible for achieving sector outputs and
outcomes. Roy Balhin his paper on Implementation rules for fiscal decentralisation
observes that “giving LGs significant control over the expenditure budgets reduces the
control that can be exerted by line ministries and shifts the balance of power away from
the centre”. Despite the FDS modality, Development Partners, working through sectors,
continued to operate in a form that was not compatible with the FDS as exemplified by
the extract in the box below.
Box 3.2: An extract from the LGBC report April 2003
FDS Compliance – Donor Agreements
In the course of the FDS sector policy reviews, it has become apparent that there are a
number of existing bilateral and multilateral agreements that do not allow for FDS
compliance in respect of modalities.In short, these agreements have at their core the
concept that the GoU agreed to implement a programme or project as designed in the
agreement that requires the GoU to dictate programmes, projects and associated
modalities to LGs. When those funds come into the GoU budget process and are
designed for distribution via the conditional grant process, this means that the GoU has
agreed to a process that is not FDS compliant in any way.
b) Processes and systems
Implementation of the FDS was also hindered by the systems and processes:
- Control over the budget calendar particularly to allow for timeliness in activities
enabling integration between the national and local government cycles was not
exercised with the rigour it required for the FDS. Delays in issuing IPFs reduced the
chances to improve the effectiveness in implementing the flexibility principle and the
time available for local government participation. The implementation of the
budget calendar was thus less amenable to the FDS requirements;
- There was less effort to integrate the FDS modalities in the full financial management
systems. For example, the introduction of a revised Chart of Accounts in 2003
provided an opportunity to embed the FDS transfer mechanisms by aligning the
classification for grants to the RTB/DTB mechanisms or at the very least, to provide a
guide and control over the expansion of the number of grants. This was not done. As
it is, the number of grants continues to expand and classifications assigned without
proper guide;
Page 19 of 150 FINAL Draft Report
- Most allocation formulae are needs based. As discussed under Chapter 4 in this
study, allocations have not grown over time, and in fact shrank in real terms per unit
allocations. Most growth has been in salary grants which are earmarked. Non-wage
sector grant financing continues to fall below the cost of service particularly as LG
populations expand. This has meant that opportunity for implementing flexibility or
providing more discretion to local governments has over time continued to diminish;
- The annual local government assessments are well institutionalized, the results of
these assessments, which measure improvement in capacity of local government,
have not been used to inform and influence Central Government’s decisions in
implementing flexibility and discretion in the grant system as was intended. The
results have no bearing on decisions on FDS reforms. This assumption in the FDS thus
failed.
c) Emerging changes
There are several developments that have over time made it more difficult to implement
the provisions of the FDS relating to streamlining the fiscal transfer system. Over time,
conditional grants have become more responsive in terms of the allocations and their
guidelines. The system of releases (from monthly to quarterly), accounting and reporting
has improved with the strengthening of the capacity of the LGs. The number of bank
accounts is less of an issue today as these have been greatly reduced. The IFMS, where it
has been implemented, has improved the capacity of LGs for financial recording and
reporting. Direct transfer of salaries to staff and releases in the case of secondary school
has greatly improved delivery systems. All these aspects have combined to improve
certainty about flow of funds and to report on them.
3.5 The forward for the FDS
In view of the above findings, the study recommends that
the key principles of the FDS remain valid and should continue to be implemented. These
include the principles of local autonomy, local participation, and discretion in local
decisions
these principles should be incorporated into the new framework, the fiscal
decentralisation architecture (FDA) but using practical modalities of implementation.
The FDA will be the vehicle for implementing the principles that are retained. Details
of these proposals are identified in table 3.3. below and are addressed in Chapter 9
Table 3.3: Key actions to take forward from FDS
Key Objective Approach / action
General
Leadership of
the FDA
Assign a champion to spearhead the FDA; to supervise its
implementation ensuring compliance by all actors with its
implementation
Key Objective I: Increasing LG autonomy
Streamlining the
Grant system
Discard the RTB/DTB system and set guidelines to reduce the number
and restrict the expansion of grants
Increasing
discretionary
powers of LGs in
allocating
resources
Sector based flexibility
Sector conditional grants are often very narrowly focused. There is
need to continue to pursue flexibility within each sector grant through,
among others, reviewing the allocation formulae to make it more
output oriented and reducing the number of grants within the sector.
Cross sector flexibility
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Key Objective Approach / action
Flexibility across sectors, as proposed under the FDS should be
dropped. The number of conditional grants should not grow but the
funding should be increased. More funding should be provided to the
unconditional grant
Increasing local
revenues
ensuring they
contribute
meaningfully to
local
development
Support and Capacity building
Greater focus should be placed on existing revenue sources rather
than new ones. Central Government needs to increase its support to
improve administration and management of local revenues.
Central Government needs to institute policies that bar political
interference. Other measures are discussed further in Chapter 4.
Key Objective II: Effectiveness of LG programmes
Better targeting
of the grants
towards poor
LGs
Grant allocation criteria
While allocation criteria for a range of grants have improved, more
needs to be done to make them more responsive to poverty and
population factors in addition to policy objectives. Sectors should be
compelled to adopt more transparent and equitable allocation
formulae. All Central Government financing should follow transparent
processes of allocation and transfer. This will reduce regional
disparities. The formulae should give special consideration to
addressing urban LG challenges
Increased
participation at
all levels of local
governments
Annual Planning and Budgeting cycle
Improve control over the cycle ensuring adequate time and funding
are provided for bottom up consultations at all levels of LGs
LGs should be compelled to improve levels of financing for
participatory planning and budgeting process to encourage greater
consultations with communities. Include a monitoring mechanism for
the participatory planning
Strengthening
accountability
Local accountability
Efforts to improve systems to facilitate accountability and reporting,
including the introduction of Form B are well under implementation.
Reporting and accounting to Central Government as well as
coverage of audits have improved greatly. However, local
accountability will require more effort, enabling regular meetings of
local councils and addressing their capacity for oversight among
others
Page 21 of 150 FINAL Draft Report
4 INTER-GOVERNMENTAL FISCAL RELATIONS
4.1 Introduction
The Local Government Act Cap 243 (Second Schedule) elaborates functions to be
performed by each level of government. Functions assigned to Central Government relate
primarily to policy formulation, guidance and monitoring while local government take
responsibility for delivering decentralized services.The Intergovernmental Fiscal Relations
(IGFR) defines the framework of fiscal operations which support the implementation of
functions allocated to each level of government. Under the framework, sources of
revenue are assigned to Central Government and to LGs19. In addition, a system of grants
from Central Government to local governments is established under the Constitution to
address a vertical fiscal imbalance between the functions and revenue sources assigned
to local governments. Between layers of local governments, vertical imbalances are
addressed through a system sharing of proceeds from locally raised revenues20 or grants
from Central Government21. This package of locally raised revenues and receipts from
grants and other sources, donor or otherwise, constitutes the framework for local
government financing22
The legal framework for the IGFR above has been largely operationalized. The system of
grants from Central Government; unconditional, equalisation and conditional grants, has
been implemented. Transfer mechanisms within the local government system have also
been established allowing for the sharing of locally raised revenues and Central
Governmentgrants between levels of local governments.
This section reviews the management and operations of IGFR and examines the extent to
which the system of grants has been effective in contributing to local government
financing and local service delivery. The section proposes recommendations to improve
the effectiveness of the IGFR and to enhance its support to local service delivery
4.2 Key Findings Associated With the IGFR
LGs’ financing increased only marginally from 3% to 4% of GDP between 2001/02 and
2010/1123.Since 2001/02 grants (both conditional and unconditional) from Central
Government have become the dominant source of revenue accounting for over 95% of
total local government financing24. This overwhelming dominance has had major
implications for local government service delivery; almost entirely, LGs depend on Central
Government grants to finance their operations and services. Therefore, how these grants
are structured and delivered becomes critical to the efficiency of local government
financing and operations of local government budgets, as well as effectiveness in
supporting local services delivery. The study identified the following key findings in relation
to the grants system and to intergovernmental fiscal relations in general:
a) The existing legal and institutional mechanisms have not been adequate to protect
and ensure appropriate growth of Central Government grants reducing the amount
of funding available to local services over time;
19 Refer to Second Schedule of the Local Governments Act 20 Rates for sharing locally raised revenues are defined in the section 85 of LGA 21 Central Government, through rules on each grants, guides on the sharing between higher local government and lower local
governments 22 The framework includes borrowing, see section 84 of the LGA, but this sources has hardly been exploited 23 Source MTEF (MoFPED) and LGFC local revenues database 24Technical note on review of Local Government Financing in Uganda, Section 2, background
Page 22 of 150 FINAL Draft Report
b) The organisation of LG financing has limited the resources at the discretion of LGs
and which LGs can put to the management of services thus creating gaps in the
supervision and monitoring of services delivery and in the maintenance of service
delivery infrastructure;
c) Whereas functional responsibilities between central and local government are
outlined in the LGA, overtime, grey areas or areas of overlap have emerged that will
require further review;
d) The rules governing the grant mechanisms are not clear leading to arbitrary
procedures in their creation, allocation criteria and management with adverse
impacts on equity and on their effectiveness to finance local services; and
e) There are significant levels of financing from the national budget for local
government services but which do not flow through or comply with the rules of the
grant system. This is undermining transparency and equity in allocation of resources
across LGs and weakening local accountability.
These findings are discussed in details in the sections below.
4.2.1 Inability to fully implement key legal and institutional mechanisms
4.2.1.1 Growth of the Grant system Existing legal and institutional mechanisms to protect and ensure appropriate growth of
Central Government grants over time is not being followed.
The Constitution, Article 193(2) requires grants to LGs to be adjusted for general price
changes and for new services on an annual basis25 to maintain consistency in the level of
financing over time.Total direct Central Government transfers to local governments have
increased in nominal terms over the past 10 years from 244bn26 in 2001/02 to over
1.64trillion in 2012/13. However, as shown in Chart 4.1 below, the growth in unconditional
grant has not been consistent with the Constitutional provision (Seventh schedule)
requiring that “for a given fiscal year the unconditional grant shall be equal to the amount
paid to local government governments in the preceding fiscal year for the same items
adjusted for general price changes plus or minus the budgeted cost of running added or
subtracted services”.
Chart 4.1: Growth in un-conditional grant compared with requirement of the Constitutional
Source data is LGFC database
25 The Constitution, article 193 and seventh schedule 26 Figures used are derived from the LGFC database
Page 23 of 150 FINAL Draft Report
In the Chart 4.1, the green line represents the growth (in nominal terms) if the Constitutional
provision (Seventh Schedule) was followed. The blue line shows the trend in actual
allocations over time. In 2009/10, the allocation under the un-conditional grant was
UShs.141.5bn. If the Constitutional formula had been followed, this would have been at
least UShs.186.7bn
Moreover, the amount for the unconditional grant at the start of the fiscal decentralisation
programme in 1994/5 was not based on the estimated costs to deliver the specified
services at the time. This base figure was low. If, going by the computations in Chapter 8,
Table 8.7, the unconditional grant were assumed to contribute to management services
only, a more realistic figure for 2009/10 would be about 280bn- which is double the
allocation in the year. As such, even with strict application of the Constitutional formulae27
on unconditional grants, it the base figure for the UCG would need to be significantly
increased to create the desired impact.
The unconditional and the non-wage recurrent conditional grants, both which are critical
to routine supervision, oversight and management of services, have not grown in real
terms28 over the period (see Chart 4.2below). As shown by the chart, there is hardly any
growth in real terms in these grants over the period 2000/01 to 20101/11.
Chart 4.2: Trend in Unconditional grant and selected grants in real terms (UShs.billions)
Source data is LGFC database
In chart above, the vertical axis is Shs.(billions). The chart shows the trend in releases under
unconditional grants and the combined sum of PHC-non wage, UPE capitation grant, rural
feeder roads urban water and rural water and sanitation conditional grants.
The pattern in growth does not compare with the significant growth (nearly double in real
terms29) in Central Government spending over the same period. Chart 4.3 below shows
27 The Constitutional formula provides in Seventh Schedule computes the UCG amount due in a given financial year as Y0 + bY0 + X1 where
Y0 is the UCG amount for the previous financial year, b is the % change in price levels and X1 adjustments for additional or subtracted
services. Y0 was never determined on the basis of realistic requirements of each LG 28 The decline is estimated at about 10% over the period 29 MTEF figures – source MoFPED
Page 24 of 150 FINAL Draft Report
that growth in grants to local government does not match the growth in national
expenditure outturns.
Chart 4.3: Central Government transfers compared growth in national budget expenditure
levels
Source data is LGFC database
The chart shows that the ratio of spending held at the centre compared to transfers to LGs
has been widening from a ratio of 1:3 to now 1:7 over the last ten years. Table 4.1 below
provides figures to support this graph. The table also shows that the level of transfers to
local governments in comparison to expenditure and revenue out-turns have been
declining in percentage terms over the period.
Table 4.1 Share of National Revenues and Expenditure
Period Transfers
to LGs
National
Expenditure
outturn
National
Revenues
and grants
% of transfers
against
expenditure
outturn
% of transfers
against national
revenues and
grants
2003/04 741 2,990 2,814 25% 26%
2004/05 806 3,274 3,099 25% 26%
2005/06 818 3,548 3,211 23% 25%
2006/07 982 4,382 3,904 22% 25%
2007/08 1,061 4,458 3,985 24% 27%
2008/09 1,172 5,237 4,671 22% 25%
2009/10 1,274 7,477 6,249 17% 20%
2010/11 1,475 9,325 6,752 16% 22%
Source: MoFPED Budget data
4.2.1.2 Suitability of the grant system
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The results in 4.2.1.1 above have raised concerns about the appropriateness of the grant
system, as propagated by the Constitution or its management, to address the vertical fiscal
imbalance between the expenditure assignments and local government revenues
sources.As a result, there are calls from a wide range of stakeholders to consider
alternative approaches including sharing national revenues between central and local
governments in defined proportions. This section reviews the opportunities offered by
alternatives to the grant system. Aspects of management of the grant system are
discussed in sections 4.2.1.3, 4.2.2, 4.2.3, and 4.2.5
There are two commonly used mechanisms for addressing vertical fiscal imbalance (a) the
revenue sharing system, and (b) the national expenditure system supported in this case by
the grant system. These are discussed further below.
(a) Sharing national revenues
It is generally agreed that some revenues assignments need to be made to sub-national
governments as part of the fiscal decentralisation architecture. There are however other
options for revenue sharing which may be considered for the purpose of addressing
vertical imbalances. Most common are
(i) Derivation basis: a sharing system where the local governmentsare allowed to keep
a specified share of what is collected within its boundaries. Examples of this are in
China, India, and Russia. In China, VAT is collected at sub-national level and shared
with Central Government. Sub-national government retain 25% with 75% remitted to
Central Government. Enterprise Income Tax is similarly collected by sub-national
levels and shared.
(ii) Sharing a specific tax; a proportion of a given national tax, for example VAT, is
extended to local governments with the distribution among local governments
based on a formula. For example, in the Philippines, 40% of national internal revenue
collections are distributed among local governments on the basis of population,
land area, and equal shares30.
(iii) Sharing pooled national revenues. This method transfers a portion of the national
proceeds to local governments. This is like an unconditional grant. Kenya and
Thailand have adopted this model; In Thailand, the Constitution allocates 20-35% of
national total revenue to local governments. Kenya’s Constitutions requires an
automatic 15% of nationally raised revenue to be distributed to LGs.
Revenue sharing under these schemes, if properly designed, will have significant potential
to address vertical fiscal imbalances between central and local governments. However,
these schemes also carry challenges as outlines in the box below
Sharing Scheme Disadvantages
Derivation basis of
sharing revenues;
requires a high level of transparency in reporting collections to
assure LGs of the right share of the revenues
Central Government may concentrate its collection and
enforcement efforts on the taxes that are either not shared or
shared to a lesser degree31 This is said to be the case in China
and India
30 Implementation Rules For Fiscal Decentralization, Roy Bahl, Jan 1999 31 Intergovernmental fiscal relations in developing countries, by Odd-Helge Fjeldstad, 2001
Page 26 of 150 FINAL Draft Report
Sharing Scheme Disadvantages
better endowed regions may benefit from unequal
development and undermine the spirit of unified national
development.
Tax by tax sharing requires a high level of transparency in collections which will
assure LGs of the right share of the revenues
Central Government may concentrate its collection and
enforcement efforts on the taxes that are either not shared or
shared to a lesser degree; more attention paid to those
sources that benefit Central Government
sharing pooled
national revenues
circumvents the problems associated with incentives to
Central Government to focus on selected sources but is said
to be problematic from the viewpoint of macroeconomic
management as discussed below
Sharing pooled national revenues presents variants which offer opportunities to
Government to tailor option to its special circumstances;
(i) Sharing based on total revenues; this method considers national revenues and
donors finances. However, the volatility associated with the donor component
makes it unsuitable for sharing purposes. Poor or unpredictable performance in
donor financing will affect the stability of local government financing
(ii) Sharing all revenues collected nationally; in Uganda’s case, this will cover all
revenues collected by URA. As national revenues have increased, over the recent
years, the Government has channelled more resources to capital investments in
energy and infrastructure in line with the NDP. This option presents a challenge on
determining the appropriate propriety of share of such revenues
(iii) Sharing revenues on assigned to recurrent expenditures. This option excludes
development expenditures. Since the wages are given, it is best to apply the
sharing to non-wage recurrent expenditures. This would imply agreeing to a
proportion of the national non-wage recurrent budget going to LGs as a block
grant. The 2011/12 share of recurrent transfers of the total recurrent budget is 33%.
If Government increased recurrent transfer to cover the financing gap as
estimated in this study (Chapter 8), this share would expand to 55%. So in this case,
a 50% share of recurrent expenditures could be a fair position.
Revenue sharing schemes present other fiscal challenges32 to which attention needs to be
paid. In addition, since sharing mechanisms above introduce a degree of entitlement, LGs
will become assured about financing from the national budget but they are also likely to
become less amenable to external interference - for example, supervision by sectors will
become more challenging. In this case, these methods need to be studied careful to
identify other changes to the legal and institutional framework that will be necessary in
order to achieve a balance for proper supervision of fiscal decentralization and local
service delivery.
(b) Using Grants; Sharing national expenditure
Uganda selected the expenditure sharing strategy based on a grant system. This was in
order to achieve development harmonization through ensuring spending on national
32 Intergovernmental fiscal relations in developing countries, by Odd-Helge Fjeldstad, 2001
Page 27 of 150 FINAL Draft Report
priorities. Allocation is based on sharing expenditures using criteria set by sector ministries.
The challenges however, has been with respect to the allocation criteria for development
and recurrent spending since the cost of service which should determine the financing
needs has not been known. Furthermore, the ratio of spending retained at the centre has
been growing overtime (see 4.2.1 above), while on the other-hand, there has been a
mismatch between national revenue growth and the growth of transfers; whereas URA
revenues grew by 22.8% between 2011 and 2012, transfers grew by 11.5%. LGs have been
in a weak position to negotiate the level of transfers. These developments have limited the
growth in grants and widened the mismatch between service requirements and financing
particularly as LRRs have not grown to fill the gap.
Sharing on the basis of national expenditures is appropriate from a point of national policy
implementation and fiscal management. In this case, public finance can be used to
target prioritized expenditures while minimising wastage.
(c) Consultant’s proposal
In view of the challenges under both schemes, Government should debate a suitable way
forward on this critical issue.It is our recommendation that Government considers a hybrid
comprising the following;
- Government introduces a sharing system based on non-wage recurrent expenditure
budget. A proportion of this national non-wage recurrent budget be assigned to local
governments for the purpose of its spending. This amount is then to be allocated all LGs
and non-wage recurrent sector grants
- a system of grants is maintained for developments expenditures. Amounts to this grants
are to be determined sector processes
This report has identified the major gap between the intentions of the Constitution and the
practise with respect to the unconditional grant. Even as Government debates the option
for revenues sharing, it should consider an interim measure to guarantee a higher
proportion of funding under the unconditional grant by earmarking a percentage of the
total budget, excluding loans and grants, for this purpose. A similar approach is practiced
in Kenya where 15% of total revenues is earmarked for LGs as a block (unconditional)
grant to cover the minimum service requirement, as a block grant.
4.2.1.3 Adequacy of legal and institutional mechanisms to protect grants
The lack of real growth in grants also raises concerns about the adequacy of legal and
institutional arrangements to implement the provisions of the Constitution. The following are
key areas of weaknesses or pressures that have affected the ability to protect the growth
in LG grants;
i. The Constitutional definition for the Conditional grant (article 193(3)) is not adequate in
emphasizing growth and the protection of the grant. There is no reference to a need
based allocation of funds; the provision is not required to match allocations to the
costs of services.
ii. The shift in national public expenditure priorities resulting from the implementation of the
NDP has a key role in the lack of growth in the grants. In the recent years, priorities
have been driven largely by the growth of commitments in the NDP with a major
Page 28 of 150 FINAL Draft Report
focus on large infrastructure projects and less priority on local service delivery33. Due
to constraints in financing the NDP34, chances to increase levels of grants to local
governments are likely to be limited in the medium term as Government continues to
meet its commitments to these infrastructure projects
iii. Some major decisions related to the local government system are taken without
careful assessment of their implications on local government financing. In recent
years, some of these actions have included the expansion in the number of districts
or lower local governments (sub-counties) and the revision of local revenue sources,
including abolishing graduated tax. Previous studies have shown that these actions
have had an adverse impact on local government financing35 where they are not
accompanied by additional resources to protect existing levels of revenues
iv. Central Government decisions on the size of grants are taken late in the annual
planning process limiting the ability for their growth and protection. Cabinet is the
principal organ for allocating national budgetary resources. The current practice is to
discuss the allocations to LGs grants in the context of MTEF sector ceilings. This takes
place after the Cabinet has agreed to the budget strategy - late in the annual
planning budget cycle. At this stage, it is too late to programme new changes to the
LG financing which may lead to arbitrary cuts in the existing levels. Moreover, the
budget strategy, the key document used by Cabinet for priority setting during the
annual planning process, as well as other budget related policy documents do not
give prominence to local service delivery. Information on local government services
is provided to Cabinet in the context of sector service delivery limiting strategic
assessment of local service delivery on development objectives.
v. Parliament has not sufficiently advocated for the protection of local government
financing.Parliament appropriates budgetary provisions to LGs and approves the
creation of new districts and the revisions to LG revenues sources. Information
provided to Parliament is not always adequate to study the implications of their
decisions on local government financing. Budget information does not always permit
a strategic view and discussion of local government financing or an appreciation of
its impact on service delivery.
vi. There is insufficient reporting on local government service delivery to support policy
discussions.Existing institutional arrangements are either insufficient or have not
provided adequate attention to analytical performance assessments of the impact
of local service delivery on the national development or to inform on policy level
dialogue. The monitoring, guidance and coordination as required by the Local
Government Act section 95 and 98 focuses on ensuring compliance with rules and
less emphasis is given to service delivery quantity, quality and impact. This lack of
institutional support for policy review of local service delivery is limiting its visibility in
the national budget allocation process.
4.2.2 Grant composition and the impact on service delivery
33 For example, at the 2012/13 Budget Conference in March 2012, the list of 7 priorities was mainly oriented to infrastructure, agriculture
and human resource development. Local governments did not receive additional funds. Implication have been no change in funding to
all major grants 3434 Nearly 17% shortfall derived comparing the Medium term fiscal framework, in the National Budget framework paper – 2012/13-2016/17
and the NDP expenditure framework 35Diagnostic of Intergovernmental Fiscal System – Urban Authorities in Uganda, Stefansson & Ssewankambo, June, 2011, Section 3.2
Page 29 of 150 FINAL Draft Report
The current organisation of the grant system limits the resources at the discretion of LGs for
management of services including supervision, monitoring and the maintenance of these
services
The Constitution (193) prescribes the organisation of the grant system selecting 3
mechanisms; unconditional, conditional and equalisation, through which financing is
transferred from the national budget to local government;
The UCG was anticipated to constitute the largest proportion of the grants in the transfer
system and that LGs would have discretion to allocate it within their priorities. However,
conditional grants have increasingly dominated the fiscal transfers to local governments
accounting for 89% in 2010/11 (see also chart below). Conditional grants have also
increased in number from 16 to 38 between 2001/02 and 2010/1. The UCG has declined
over the period from 32% to about 10.5% while the equalization grant continues to diminish
accounting for under 0.5% in 2010/1136.
Chart 4.4: Relative share of Grants between 2000/01 and 2010/11
Source: LGFC Database
The chart above shows the relative share of LG grant transfers between 2000/01 and
2010/11. As demonstrated, the conditional grants have grown to be the most dominant
form of transfer.
4.2.1.1. The grant system and financing for local services
The increase in number of conditional grants, specifically the wage related conditional
grants, has crowded out and virtually eliminated prospects for the growth of other grants.
Many conditional grants have remained constant over many years. UPE capitation grant
has remained at Shs.7,000/= per child since 2001. This grant is used to finance instruction
materials, co-curricular activities and school management activities. Somegrants have
become increasingly fragmented and their ability to finance local services has been
eroded over time; Health Centre IIs (HC II) in Pader get an average of 66,000 per month,
HCIIs in 14 districts get below 100,000 per month
36 LGFC database on transfers
Page 30 of 150 FINAL Draft Report
In cases where the grants have had to be shared between HLG and LLG or service
delivery units, amounts transferred to LLGs have in some instances have become too small
to have any meaningful impact. This is illustrated in Tables 4.3 and 4.4 where average
monthly allocation under Functional Adult Literacy (FAL) in 2011/12 to sub-counties in
Rubirizi is only Shs.10,427/=, monthly allocations under Community Development Workers
(CDW) grant in Rubirizi and Amuria fall below Shs.5,000, and PHC nonwage monthly
allocation for a health centre II in Bushenyi is only Shs.37,720,
Table 4.3: Sample allocation of selected CDW grants 2011/12
Grant District Population Poverty
index
No of
Sub
counties
Annual
Allocation
(Shs)
HLG
Monthly
allocation
(Shs)
Average
allocation
per sub-
county per
month
(Shs)
FAL Rubirizi 124,500 20.54 11 2,117,565 176,464 10,427
CDW Rubirizi 124,500 20.54 11 530,152 15,562 2,610
Amuria 406,400 46.00 16 1,325,381 38,657 4,487
Bududa 186,400 43.77 16 1,590,457 46,388 5,384
Table 4.4: Example of grant parameters for PHC non-wage
District Population Poverty
index
Annual
District
allocation
HLG
DHO
allocation
No of
Health
Centre II
Average
allocation
per Health
Centre
Bushenyi 200,600 15.12 93,358,086 1,555,968 85 37,720
Kapchorwa 114,000 35.54 48,045,459 800,758 20 72,796
Source: Derived from National Budget 2011/12 and subjected to allocation formula
For grants whose allocation is tied to administrative units, like in the case of FAL and CDW
which are tied to sub counties, the allocations fall further as the number of these units
expand. This is illustrated in the table below for CDW for the years 2011/12 and 2012/13
Table 4.5: Illustration of erosion of allocations for CDW as number of sub counties increases
FY Total Grant
(Shs.)
Number
of
District
Number
of sub
counties
Average
allocation
(retention - 35%)
per district per
month
Average
allocation per
sub-county
(65%) per month
2011/12 400m 111 1,270 105,105 17,060
2012/13 314m 111 1,300 82,508 13,083
Reduction (%) -22% -23%
In the table above, the changes - reductions in size of the grant, and increase in number
of sub-counties, in 2012/13 may see a further drop in monthly allocations of 23% bringing
the monthly allocations to a county in Rubirizi to only Shs.2,010/=. It should be noted that
this financing is expected to cover a set of 9 recurrent activities at the sub-county level
related to office operations (including meeting expenses), mobilisation and field visits.
Page 31 of 150 FINAL Draft Report
4.2.2.1 The grant system and Financing of Management Services
The low levels of financing under the unconditional grant and the equalization grant has
led to less discretionary funding (UCG and equalisation grant) for LGs. This, coupled with
the fall in local revenues, has undermined the operational efficiency of LGs; their ability to
supervise service programs and to maintain infrastructure stock is curtailed. It is worth
noting that a significant portion of the unconditional grant (about 60% in 2011/12) is
earmarked for wages reducing further the proportion of the grant over which LGs have
discretion. As seen in the table 4.6 and 4.7 below, LGs tend to spend less on management
functions including planning and internal auditing (less than 1% of total expenditures in the
case of the districts).Internal audit units are under facilitated making it difficult to follow up
with services units in value for money assessments. Councils allocations as well as for the
oversight committees of LGPAC are also meagre; less than 1% of total budget allocations.
Councils are failing to meet regularly to undertake their oversight roles.
Table 4.6: Non-wage recurrent Budgets and Actual expenditure for Districts (000)
Department KIRUHURA KAPCHORWA MOROTO
Budget Actual Budget Actual Budget Actual
Management Services 753,156 285,749 234,159 175,707 1,178,297 1,701,933
Admin. (incl. CAO) 456,099 - 140,943 111,011 815,772 1,583,777
Finance 125,620 258,170 45,356 27,430 126,165 104,074
Planning 142,270 - 47,860 37,266 211,807 8,278
Internal Audit 29,167 27,579 - - 24,554 5,804
Statutory Bodies 205,477 169,372 103,190 85,675 252,031 179,993
Clerk to Council 90,181 75,619 40,540 30,408 86,982 23,402
District Contracts
Committee 52,011 46,346 18,530 17,883 59,160 14,683
LG Public Accounts
Committee 3,624 2,377 5,760 5,679 1,786 4,283
District Service Commission 41,772 29,586 18,860 18,259 16,220 25,285
Standing Committee - - 15,500 12,378 84,420 110,489
District Land Board 17,889 15,444 4,000 1,066 3,463 1,850
Departments 8,871,098 7,619,718 6,639,432 3,200,006 5,088,405 5,846,972
Production 1,748,889 1,703,992 1,688,177 1,565,861 1,654,664 1,399,618
Health 1,317,979 1,282,402 1,651,413 613,071 1,261,222 2,138,387
Education 4,313,897 3,977,910 675,535 428,152 1,113,632 1,216,724
Works 500,919 445,173 1,799,504 254,426 372,355 450,028
Water 708,839 66,086 587,647 291,383 204,087 482,302
Natural Resources 146,830 63,640 47,000 3,087 125,379 7,977
Community Based Services 133,744 80,516 190,156 44,026 357,066 151,936
Total Expenditure 9,829,730 8,074,839 6,976,781 3,461,388 6,518,734 7,728,898
Source: Audited Accounts for 2009/10 for the districts of Kiruhura, Kapchorwa and
Moroto.
The table above shows summaries of non-wage approved budgets and actual
expenditures for three districts of Kiruhura, Kapchorwa and Moroto while the table below
shows the proportional allocations for management services areas.
Page 32 of 150 FINAL Draft Report
Table 4.7: Proportion of budget allocations to key management and oversight functions
Department
KIRUHURA KAPCHORWA MOROTO
Budget Actual Budget Actual Budget Actual
Management Services 7.7% 3.5% 3.4% 5.1% 18.1% 22.0%
o/w Planning 1.4% 0.0% 0.7% 1.1% 3.2% 0.1%
o/w Internal Audit 0.3% 0.3% 0.0% 0.0% 0.4% 0.1%
o/w Others 5.9% 3.2% 2.7% 4.0% 14.4% 21.8%
Statutory Bodies 2.1% 2.1% 1.5% 2.5% 3.9% 2.3%
o/w Council costs 0.9% 0.9% 0.6% 0.9% 1.3% 0.3%
o/w LG PAC 0.0% 0.0% 0.1% 0.2% 0.0% 0.1%
o/w Committee incl. DEC 0.0% 0.0% 0.2% 0.4% 1.3% 1.4%
o/w Other bodies 1.1% 1.1% 0.6% 1.1% 1.2% 0.5%
Departments / Sectors 90.2% 94.4% 95.2% 92.4% 78.1% 75.7%
4.2.2.2 Suitability of design of conditional grants
The allocation formulae under conditional grants are also not well suited to addressing the
poverty objectives under the NDP or may even increase marginalisation.
(a) Current allocation formula are largely needs based to satisfy the requirement “to
finance programmes agreed upon between the Government37”. The FDS requires
that the allocation formula for conditional grants should, in addition to targeting
sector objectives, take into account poverty prevalence in the LG. However, as
shown in Table 4,838 below, the correlation between grant allocations and the LG
poverty indicators is generally low (less than 0.5) although there appears to be some
improvement between 2006/07 and 2010/11. This low correlation implies that the
allocation formulae are still insufficient in targeting the more disadvantaged LGs.
Table 4.8: Correlation between allocation under selected grants and population /
poverty factors
Grant
2004/5 2006/07 2010/11
Population Population Poverty Population Poverty
UPE Capitation 0.30 0.31 (0.31) 0.81 (0.10)
Roads Rehabilitation 0.48 0.48 (0.33) 0.47 0.47
PHC - Non-wage 0.66 0.71 (0.33) 0.92 (0.01)
Functional Adult Literacy (0.16) 0.16 0.44 0.63 (0.07)
Community Development
Workers 0.08 0.06 (0.04) 0.32 (0.09)
NAADs 0.27 0.25 (0.05) 0.75 0.00
Rural water and sanitation 0.13 0.20 (0.19) (0.14) (0.17)
LGMSD 0.79 0.84 (0.29) 0.95 0.11
Source: Budget data as provided by MoFPED
37 See explanation of Conditional grant – the Constitution, Article 193 38 Data used in the table is restricted to rural HLGs. It does not include urban LGs
Page 33 of 150 FINAL Draft Report
(b) A second factor is that of the fairness of the parameters used in the allocation
formulae. While this study did not carry out an extensive review of the adequacy of
such parameters, LGs identified additional factors to be considered in the
determination of sector grant allocations for selected grants. These are laid out in
the table below. Sectors will need to study these factors.
Table 4.9 Emerging factors in the allocation to LGs
Grant Present allocation
parameters
Additional parameters identified
with LGs
Primary
Education
(UPE)
Enrolment Poverty and Population factors.
No of children with special needs
No of girls in P5-P7
Urban Water
O&M
Tariff subsidy
System specific allocation
Connection subsidy
allocation
Population & urbanization factors
cost of administration and
supervision
PHC Non-
Wage
Population
Infant mortality
Poverty prevalence
Maternity mortality rates
catchment area
cost of delivery per district for
example for island districts
(Kalangala, Namayingo)
Roads
maintenance
(URF)
Districts roads: Population
and area
Community access roads;
population
terrain and environment factors
for example for mountain LGs
NAADS Rural Land Area
Rural Population
Poverty Head Count
population density
Rural Water
and Sanitation
basic minimum allocation
for overheads / operations
per capita cost for
delivery of water and
sanitation services
population at sub-county
safe water coverage at
sub-county
technology of water delivery
systems
terrain
Rural Feeder
roads
land area
population
environmental factors such as
climate
terrain,
Source: Based on survey Analysis 2012
It emerges that gender is becoming a key consideration particularly in social sectors.
Nearly all LGs have asked for a special provision in the UPE grant to cater for the
unique requirements of girls in the classes of P5-P7.
(c) The grants in general do not provide for a reasonable level of operations and
maintenance. Head teachers in all districts raised concern about their inability to
meet the costs of maintaining school infrastructure. While, O&M is eligible for funding
under some of the grants, the limited funding constrains the ability to maintain
infrastructure. In the case of PHC, more funding going towards immunisation and
Page 34 of 150 FINAL Draft Report
outreach activities leaves no provisions for the maintenance of the facilities at the
health centre
Table 4.10: Funding to selected services and constraints
Grant Allocation Scope to finance Constraint including O&M
UPE Under 7,000 per
child per annum
35%: instructional /
scholastic materials
35%: co-curricular
activities
10%: school
management (10%),
10%: contingency
No special provision for O&M
Low funding has led to
reducing expenditure on co-
curricular activities and no
allocations in general to
O&M leading to degrading
school infrastructure
PHC HC II in
Nadunget an
average of
66,000 per
month. HCIIs in
14 districts get
below 100,000
per month
administrative expenses
food supply
O&M,
Utilities,
cleaning services,
goods and supplies,
training costs,
payment of interns,
outreaches,
monitoring, supervision
and reporting
O&M in the list of items
eligible for funding. In
practice, due to low funding,
O&M hardly gets allocation
leading to rapid deterioration
of the condition of
infrastructure
4.2.2.3 Equalisation Grant The equalisation grant has remained very small and its impact is not clear. Government
has provided the equalisation grant at about 0.5% of the total grants or less since
1999/200039 (less than Shs.4bn compared with recommended 12bn by the 1999 study on
the introduction of the equalization grant40). The low level of the equalisation grant
financing in comparison to overall transfers may be attributed to non-application of an
appropriate basis for its determination in the absence ofminimum service standards across
all sectors41.
There is a risk that the equalisation grant, in the form it is implemented and amount
provided, may not address the objectives for which it was intended. LGs in the study
generally did not understand the basis for allocating the equalization grant. For example,
Kapchorwa and Namayingo districts could not understand why they had no allocations
for equalization grant and yet Soroti district did have an allocation. Moreover, there is no
process for assessing the degree to which the grant is helping to address the lag behind
the national average. This concern has been raised by the NDP as presented in the
caption below.
Challenges for the Equalization Grant
In spite of the introduction of equalization grants to bring disadvantaged local
governments to the level of service delivery comparable to the rest of the country,
regional imbalances still exist. This is partly demonstrated by disparities in poverty levels
and social development indicators. While nationally, the population below the poverty
line is 31%, the poverty incidence is highest in the Northern region at 66 per cent,
followed by the Eastern at 46.8 per cent, Western at 34.4 per cent, and Central at 27.1
39 The equalization grant was introduced in 1999/2000 40 Introduction of Equalization grant ‘Analysis and Recommendations’ March 1999 41 A number of sectors have now put in place minimum service standards. These include water, education and health
Page 35 of 150 FINAL Draft Report
per cent.
Source: NDP, Paragraph 837
A further concern regarding the equalisation grant is clarity in its purpose.The concept of
the “lag” as provided in the Constitutional definition of the equalisation grant is not clear.
In the absence of a menu of eligible expenditures, the equalisation grant is being applied
to address activities that include administration and operational infrastructure, community
mobilisation and social development activities, capacity development, programme
supervision. For example, Soroti District has a provision of Shs99m under the grant for
2011/12 and is applying it to constructing a fence around the District Headquarters.
Moreover, there are three types of grants with elements of duplication which aim to
address the elements contributing to lagging of a LG: (a) sector based development
grants in education, water, health, roads that have targeted investments to address
infrastructure gaps, (b) the non-sectoral development grants (LGDP/LGMSD) that have
over the years provided non-discretionary funding to LGs to support infrastructure
development, non-sector specific activities and even to complement sector investments,
and (c) non-sectoral funding for special cases of marginalisation – the NUSAF, for northern
Uganda, and the Luweero-Rwenzori Development Programme. These additional grants
are targeting aspects of the “lag” within the LGs, their allocations include elements of
poverty and population, they are relatively more focussed and their systems for delivery,
supervision, accounting, reporting and assessment are better developed than the
equalisation grant.
4.2.3 Functions not being performed
Whereas functional responsibilities between central and local government are outlined in
the LGA, overtime, grey areas or areas of overlap or new assignments have emerged that
will require further review
Functional responsibilities between central and local government are outlined in the LGA
(second Schedule). Overtime, grey areas and/or areas of overlap have emerged that
may require further review and deliberation. Field visits with local governments identified
the key areas listed in the table below. Overlap or lack of clarity in a number of mandates
between the centre and local governments has meant that some key service functions
have remained poorly funded or not supervised by LGs. There are also specific areas
which, while clearly part of a decentralized function, have not been devolved to local
government. Tables 4.11 and 4.12 below list some of major grey areas identified in the
study.
Table 4.11: Functional areas of overlap
Function Status
Trade Development Services; conflict in roles with Central Government / unfunded
Social Rehabilitation; role unclear
Secondary Education not fully decentralised
Trade / Technical Education not fully decentralised; and role unclear in relation to
private sector
Land Administration role un clear
Labour and Industrial
Relations
role un clear - unfinanced
Probation And Welfare Conflict with District roles
Source: Study data 2012
Page 36 of 150 FINAL Draft Report
Table 4.12: Functions which LGs wish to see decentralized
Function by Sector Reasons for decentralisation
Education
Secondary Education deployment of teachers
School inspections functions is a local government mandate
Secondary - Appointment of Board of
Governors
to improve supervision and vetting
Supervision of secondary education slow / poor response by Central
Government
Vocation Education it is a mandate of Local Governments
Environment and Natural Recourses
Management of forests poor response by Central Government
Lease, land registry and land markets relates to LG mandate and poor
response by CG
Management of central forest Reserves LG can provide better management
Community and Social Services Not fully decentralised
Labour not fully decentralised
Rural training centres To respond better to community needs
Works
Vehicle number plates registration function relates to LG mandate
Road Unit Equipment repairs poor / slow response by regional
workshops
Water
Supervision of Water for growth centres poor response by Central Government
Water for production e.g. valley dams poor response by Central Government
Agriculture
Regulation of inputs poor response by Central Government
Pests and disease control LG already executing it
Health
Maintenance and repair of equipment poor response by Central Government
Health Training for short courses poor response by Central Government
Salaries and personnel emoluments
Pension processing slow response from Central Government
Source: Study Data 2012
4.2.4 Rules for grant mechanisms
The rules governing the grant mechanisms are not clear leading to arbitrary procedures in
their creation and management with adverse impacts on equity and on their effectiveness
to finance services
Foremost, transfers to the first batch of districts in 1993/94 were drawn arbitrary; from
provisions for activities of line ministries whose services were decentralized, without proper
costing. The size of the un-conditional grant in 1996/97 was based on affordability within
the ceiling imposed by the MTEF. Subsequent changes to the size of the grants have been
incremental with no real revisions to address costs of services. Secondly, no single set of
Page 37 of 150 FINAL Draft Report
rules or criterion was developed when new grants were created. This is illustrated in a
survey of 19 grants that were created between 2001/02 and 2010/11 – see box below.
Box 4.1: Rules in creating grants in practice
Qn.1: What was the motivation of creating the grant?
Qn.2: Why was it necessary to use a separate grant?
Qn3. How was the grant created?
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Qn.4: How was the ceiling to the grant determined?
Source: Local Government field surveys. 19 were grants created between 2001/2
and2011/12 in the sectors of education, community services and administration were
involved in this survey
The survey points to an adhoc process for creating new grants and one which may not be
properly regulated. The origination of a grant can be from any source, LG, sector, MoFPED
or even Cabinet. The motivation for its creation also varies perhaps depending on the
source of the grant. Ceilings are in some cases based on the cost of services, particularly in
the case of salary grants, on levels determined by MoFPED or even on the basis of
directives from Cabinet. The gap between the level of financing and the cost of service is
often aggravated by the weak negotiations during grant formulation which focusses on
the purpose and modality without covering the size of the grant. LGs’ participation in
these negotiations is often limited.
The absence of formal rules for creating new grants is a factor limiting their effectiveness
during implementation. The limited participation of LGs in the process of formulating grants
undermines their ownership and efforts to increase local autonomy. The practice
described above has also not been effective in determining optimal levels of financing for
the services for which the grants are intended. For example, in the case of CDW grant
(also refer to table 4.2), sub-counties in 80 of 111 district receive less than Shs.20,000 per
month
4.2.5 New practices in the decentralization architecture
There are significant levels of financing from the national budget for local government
services but which do not flow through the grant system Table 4.13 below provides a list of
these expenditures under the 2011/12 budget.
Page 39 of 150 FINAL Draft Report
Table 4.13: Expenditures under 2011/12 budget (figures in UGX billions)
SECTOR/VOTE
Non-
Wage GoU
Donor Total
WATER AND ENVIRONMENT
- Rural water and sanitation - Support to RWS project 0.64 - - 9.01
- Urban Water supply and Sanitation - 090280
1.04 4.09 5.14
- Water and Sanitation Development - North (1074)
1.48 10.40 11.89
- Water and Sanitation Development - East (1075)
1.40 5.05 6.45
- Water and Sanitation Development - Central (1130)
4.96 0.83 5.79
- Kampala Sanitation Program - protection of L Victoria
0.10 32.53 32.63
- Support to small town WSP 0164 090280
0.64 0.21 0.85
SUB-TOTAL Water 0.64 9.63 53.12 71.76
EDUCATION
- Development of Sec Education: Project 0897
6.50 0.77 7.27
- Post Primary Education: ADBIII Project 0949
1.06 8.71 9.77
- Support to USE (IDA) - 1091
0.75 91.20 91.95
- Support to USE (ADB IV) - 1092
5.57 33.45 39.02
- Operational Support to Govt. Technical Colleges 33.99
33.99
- Development of BTVET (0942)
3.24 2.01 5.25
SUB-TOTAL - Education 33.99 17.12 136.14 187.25
ACCOUNTABILITY
Ministry of Finance
Sub-county Development Grant/Strategic Interventions 4.60 7.72 12.32
SUB- TOTAL ACCOUNTABILITY 4.60 7.72 12.32
GRAND TOTAL 39.23 34.46 189.25 271.33
Source: Compiled from National Budget 2011/12
If these funds were to be included in the transfers to local governments through the grant
system, the sector shares for local governments would increase significantly, for instance, in
education, the share would move from 67% to 82% using 2010/11 figures. The share under
health would increase from 36% to 58%.The bulk of these are development programs
financed in part by external development assistance. Their design is often a reflection of
agreementsreached with respective development partners. Additional issues relating to
this type of financing are enumerated here below;
Financing outside the formal grant system is often not subject to the rules of allocation,
transfers and reporting in conformity with the decentralization framework. Thisis likely
to violate the cardinal decentralisation principles of equity and transparency in
horizontal distribution of resources across local governments.
Local accountability for service delivery under these programmes is generally
weak.Major accountabilities for these programs tend to remain with the Central
Government. Central Government units impose greater control over the design,
supervision and reporting creating a situation of increased accountability to the
centre. For instance, more emphasis is given to reporting to the Ministry of Education
on USE construction activities under the ADB funded project. This is weakening the
local accountability and sustainability of these projects.
Page 40 of 150 FINAL Draft Report
Provisions to local governments are not captured in their budgets. Additionally,
disbursement channels used are different from those relating to other grants. As a
result, these funds are not always captured in LG audits and not subject to oversight
by LG Councils; and
Most of these modes of financing are project based. Where specific project
implementation units are used, these introduce overheads which reduce the size of
the provision available to service units (Table 4.14 below).
Table 4.14: Analysis of Central Government spending and Transfers to LGs (figures in
UGX-billions)
Project / program run at Central
Government
2011/12
Budget
(incl.
donor)
Spending
at Central
Govt.
Transfers to
LGs or other
service
units
%
overhead
Education - Support to USE (IDA) 103.7 18.0 85.7 17%
Education - Support to USE (ADB IV) 39.0 2.8 36.2 7%
Water and Sanitation Development
facility - North 12.8 0.9 11.9 7%
Source:National Budget Framework Paper 2011/12
4.3 Proposal on review of grant system
This is a proposal to review the current grant system limiting the number of grants while
increasing the level of flexibility. It is a variant of the FDS proposal on reducing conditional
grants. Recent developments in payment practices and systems (direct transfers) improve
the chances to implement some of the recommendations related to collapsing grants
under the FDS. Direct transfer methods are able to guarantee the delivery of funds to the
final destinations. Local governments’ control function is not lost since they verify and
advise MoFPED on all payments. Table 4.15 below shows possible changes in the structure
of the grants.
Table 4.15: Proposed changes in Grant structure by Sector Sector Current CG distribution
2011/12
Proposed new structure
Total
grants
Wage
grants
Non-
wage
grant
Devt No of
grants
No of
line
items
Grants and line item Implications (budget lines)
Wage Non-
wage
Devt
Health 6 1 4 1 1 4 1 2 1 PHC Salaries
PHC Non-Wage
Transfer to other units (District & NGO
Hospitals)
PHC Development
Education 7 3 3 1 1 5 1 3 1 Education salaries
Primary Capitation
Secondary Capitation
Health Training
Education development
Agriculture 3 1 1 1 1 2 1 1 Production and marketing
Production – development
Drop wage
Page 41 of 150 FINAL Draft Report
Sector Current CG distribution
2011/12
Proposed new structure
Total
grants
Wage
grants
Non-
wage
grant
Devt No of
grants
No of
line
items
Grants and line item Implications (budget lines)
Water /
Natural
resources
4 3 1 1 3 2 1 Rural water
Urban water
Water development
Drop wage
Works 2 1 1 1 2 1 1 Road maintenance (URF)
Roads rehabilitation / construction
Community
Services
6 1 5 1 3 3 FAL
Special groups; Women, youth, PWD
Public libraries
Non-sectoral 1 1 1 1 1 LGMSD
General /
Administratio
n / statutory
9 4 5 Move all to UCG
TOTAL 38 10 22 6 7* 20* 2 14 6
NB: *Conditional grants could be 7, if sector alignment is accepted or 20 if the definition is
maintained at budget line level
Source: Compiled from 2010/11 national budget as provided by MoFPED
Basic principles to guide this proposal:
Conditional grants are to stay and to the extent possible, be restricted to front line priority
programme areas (PPA); education, health, agriculture, water, roads, environment
which are consistent with national policies and programs and with key target areas;
All functions under management services should be financed using unconditional grants
or local revenues. This implies conditional grants under statutory / administration
including IFMIS, DSC operational costs, PAF Monitoring & Accountability, Start Up
Costs, DSC Operational Cost, Boards and Commissions and School Inspection
should be moved to the non-wage component of unconditional grants. Similarly,
DSC Chairperson salary, CAO/Town Clerk's salary, Salary and Gratuity for LG elected
leaders, LLGs Ex-Gratia are to be classified under the wage component of the
conditional grant;
LGs are to demonstrate that they are making the necessary allocations to management
services. Without making the unconditional grant conditional, LGs should be required
to provide ex-post reporting on the implementation of key managements services
against a set of indicators, for example to demonstrate that the Councils are
meeting, inspection visits under education are taking place, and value for money
review are conducted by internal audit. Performance on these agreed parameters
should form prior conditions for releasing sector grants;
All salary related grants, except where they relate to service centres such as schools,
health centres, with distinct management outside the central LG structure, should be
integrated into the un-conditional wage grant. In this regard, conditional grants for
agriculture extension and community development works should be abolished and
integrated into the UCG-wage. The recent developments in systems such as straight
through processing (STP) introduce sufficient control and assurance that salaries will
reach recipients;
Salary payments under education and health, or for that matter, all sectors with distinct
service delivery units, should be clustered under a single expenditure line. Thus,
separate lines (grants) for primary, secondary or tertiary education are replaced with
one salary line “Education Salaries”. Again, there should be no concern regarding
mixed payments because of controls associated with direct transfer mechanism. An
Page 42 of 150 FINAL Draft Report
analysis of payments under each primary, secondary or tertiary should still be done
from the payrolls;
All activities related to planning, supervision, monitoring, and auditing should be funded
from an unconditional grant (non-wage component). Again, as indicated earlier,
the use of ex-post conditions e.g. existence of internal audit reports, and delivering
health/ education inspection reports as per schedule. This also means expanding the
unconditional grant; and
Allocation formulae for conditional grants should be based on budget lines and controls
maintained at the same level. Again, as systems have changed, these have
become easier to manage; the secondary education grant is already disbursed
directly to schools, soon primary schools will follow. This is also likely to be picked up
under the health sector. The widening of the IFMIS is also likely to strengthen control
as, for example, LGs will receive releases along budget lines electronically, and vote
holders can then be able to view receipts due to them much faster than before
making service delivery quicker. The robust IFMIS has built in accountability and
monitoring functionality that enables the closing of outflow gaps.
4.4 Key recommendations
This section deals with recommendations derived from the above findings. They are
grouped into short term and long term
Ker recommendation on vertical sharing of revenues
The Government, through MoFPED, should undertake a study to consider alternative
vertical sharing options other than the grant systems and the opportunities they offer
to addressing vertical imbalances in financing for local governments
The outcome of this recommendation is critical for the proposed recommendations
presented below. If the Government determines that the grant system should stay, the
recommendations below should be implemented in full. Since a review of the vertical
sharing mechanisms may not happen in the short term, the Government should proceed
to implement the recommendations below provisionally.
a) Fiscal transfers
Strengthen institutional and legal mechanisms to protect and improve advocacy for
grant financing levels; allow greater discussions of local service delivery in Cabinet
by (i) including prominent sections in the budget strategy and other national budget
policy documents, (ii) giving more priority to allocation to local governments, and (iii)
protecting financing to local governments ensuring its growth in real term in line with
population and price changes.
The law (Public Finance Act replacing the Budget Act) should also be amended to
require the MoFPED to provide a separate medium term financing plan for local
government service delivery along with the national medium term expenditure plan
and to submit them to Parliament on 1st April42 . Parliament will be able to monitor
the implementation of provisions of the law related to fiscal decentralisation and to
ensure the growth in grants as required in the law. These changes should be led by
MoFPED in close collaboration with MoLG and LGFC.
42 Budget Act (2001) – section 4(1)
Page 43 of 150 FINAL Draft Report
Review the budget calendar to focus attention on local service delivery earlier in the
national budget planning process. This should also include a review of the MTFF to
include specific targets for financing local governments over the medium term and
to require Cabinet to make aggregate allocations to LG services. This process will be
led by MoFPED.
Review the structure of key policy budget documents to include a section to inform
policy decisions on the state, performance and financing of local service delivery.
This action will led by MoFPED working closely with LGFC.
All financing for functions assigned to LGs services from Central Government should
be transferred through the grant system and use established grant rules focusing on
increasing the levels of transparency and equity. In this regard, the rules and
operations of the grant system should be embedded in the aid management
procedures, and the development partners should be made aware of them at the
time of negotiating external assistance that is intended to support decentralized
services.
Develop an analytical function to monitor local service delivery, draft inputs to the
budget strategy and a special local service delivery and financing performance
report. The function will be placed within the LGFC but will work closely with MoFPED
(EDP&R, MEPD and BMAU). LGFC will initiate the development of this function
working closely with MoPS and MoFPED. It will imply reviewing the structure of the
LGFC to provide for the function and the recruitment of appropriate staff, and the
financing for this new function. MoFPED will review its budget calendar and provide
guidance and formats for the input to be provided by this analytical function into
the budget process.
The Minister of Local Government, in consultation with Minister of Finance and
Minister for Public Services, by statutory instrument43, should establish regulations to
guide the process for creating new local governments and reviewing the local
revenue structure in a form that will preserve and promote the effectiveness of
financing of the local government system. The regulations should clarify the criteria
and institutional roles for changes in the form of local governments’ structure and
revenues;
Enhance the role and profile of the LGFC, in the regulations, to review and advise
the President as well as Cabinet on the implications of policies and decisions that
impact local government financing. This should cover policies and actions related to
revenue and expenditure assignments, changes to the Central Government grant
system, changes to the structures of the local government, etc. This role will be
clarified in the statutory instruments of the Minister of Local Government.
b) Vertical sharing
Sectors should review functions to clarify detailed assignments of mandates
between central and local government to eliminate “grey” (unfunded/overlaps)
areas that have emerged over time. Cases in point are situations of refugees and
other security threats including cattle rustling and other incursions. The MoLG should
lead this process establishing a calendar of activities for the sectors. The Ministry
43 Based on authority granted under Section 175 of the LGA
Page 44 of 150 FINAL Draft Report
should work closely with MoPS while undertaking this. The Ministry should also
coordinate this review process with the on-going study on the implementation of the
regional tier and the planned study on local government structures. The clarification
of grey areas will have financial implications for local governments. The MoLG, in
close collaboration with LGFC should determine the financing implications and
reach agreement on the modalities for implementing them with the MoFPED.
Review the sharing of personnel responsibilities between CG and LGs to improve the
attraction and retention across LGs. Consideration may be given to reviewing the
sharing of responsibilities for HR management for professional / management staff in
a service delivery unit that may be located under separate management – in this
case secondary schools and health centres. MoLG should coordinate this activity
working closely with MoPS, sector ministries and local governments. The review
should also be coordinated with the exercise on the implementation of the regional
tier and the proposed exercise to review local government structures.
c) Grant system – design and flexibility
Reform the grant system; pursue FDS recommendations to reduce the number of
grants and evolve the system in a manner that will strengthen the partnership
between LGs and the centre by ensuring consistency, autonomy, predictability and
adequacy to meet the minimum cost of services. Reduction in the number of grants
will include rationalizing salary grants and requiring the functions of inspection,
supervision, monitoring and reporting, and all roles of central administration, to be
financed out of LG central budget. This also implies reviewing the level of UCG to
meet these mandates. LGFC, through the Minister for Local Government, will lead
the reforms to the grant system. This will involve coordinating with MoFPED, sector
ministries and with local governments. An initial proposal on the size of the un-
conditional grant that will be required in the reformed system of grants is provided in
Chapter 8.
Increase UCG to provide more flexibility to finance unfunded mandates and institute
a process to monitor the allocations to key mandates without compromising the un-
conditionality of the UCG. The LGFC should coordinate the development of ex-post
conditions and a performance framework to be used to monitor the implementation
of mandates of local governments funded under the grant. The performance
framework will provide conditions (prior conditions) that will trigger the disbursements
of the sector conditional grants. The LGFC, working with MoFPED, should institute
procedures for the performance assessments and integrate them into the rules for
quarterly releases taking care not to cause further delays in the release system. In this
regard, MoFPED (LGROC) will revise the release guidelines to integrate these new
rules.
Review the rules and criteria of the conditional grants to focus conditions on outputs
rather than inputs and to increase the flexibility of LGs in allocating to priority needs
within each sector.
Evolve the equalisation grants to tie eligibility to low revenue potential and the
existence of unique conditions which constrain delivering services within a LG, for
example, difficulties in operations associated with island LGs or unique terrain in high
altitude or mountain LGs. A study will be necessary to expand the criteria, identify
Page 45 of 150 FINAL Draft Report
those LGs that fall below the threshold of the revenue potential and those with hard
to operate conditions of service delivery identified above.
Amend the LGA to require conditional and equalisation grants to grow based on the
formula laid out for the unconditional grant in the Constitution (Seventh Schedule).
Implement these growth provisions on annual basis.
d) Grant system – formulation and operational rules
Design and institute a set of rules to guide the formulation of new grants. The rules will
require that grants are sufficiently funded to meet a basic level of service delivery
and to ensure growth in real terms over time. These rules will form part of the revised
FDA. Drawing up the rules will be led by LGFC closely collaborating with MoFPED,
sector ministries and local governments in the context of the LGBC. Once the rules
are established, LGFC will lead their implementation in the context of the revised
FDA.
Review the grant system to increase the sensitivity of the allocation formulae to
poverty and population factors and to provide adequately for O&M for services with
physical infrastructure implication. LGFC will coordinate with sectors to continuously
review grant allocation formulae to increase their sensitivity to poverty and
population factors. To the extent possible, O&M costs should also be budgeted
under the UCG but sectors may provide cost provisions within the grants where new
investments are made for a period not exceeding 3 years. These O&M costs should
then be transferred to the UCG. The service delivery monitoring function in LGFC
should monitor the allocations and disbursements for O&M for each local
government.
Institute rules to require all financing for LG functions to be implemented within the
grant system in a form to ensure transparent and equitable distribution. The
implication is that current projects and other sector disbursements made directly to
local governments should be integrated into the formal grant system. MoFPED is to
coordinate with LGFC and sectors to develop these rules. The rules will have
implications for donor relations for example in negotiations of external assistance.
MoFPED, under the Partnership Policy, will issue guidelines to DPs on the rules
governing external flows to local governments taking account of the requirements of
the grant system.
.
e) Grant system – operational practices
Extend the system of direct transfers to primary schools and health centres to
improve efficiency in disbursements for service delivery. The process should be led by
MoFPED in collaboration with MoES.
The transfer of funds to local governments should be responsive to the bottom up
planning process, so that any transfer is targeted to the achievement of specific
work plan outputs and outcomes, an output funding system.
Page 46 of 150 FINAL Draft Report
5 ANNUAL PLANNING AND BUDGETING CYCLE
5.1 Introduction and background
Local Government (LG) Planning and Budgeting process is central to Uganda’s fiscal
decentralization policy implementation. The LG Act (CAP 243) section 77 (1) provides LGs
with the rights and obligations to formulate, approve and execute their budgets and
plans. The LG annual planning and budgeting process ensures that local needs and
priorities feed into the national plans and budget in a bid to localize implementation of
government programs. To strengthen this process, the FDS harmonized the LG and CG
planning and budgeting cycles to facilitate the integration of local government
development targets into the national process while strengthening dialogue on LG issues
at the national level. This harmonization has also facilitated the transfer of grants from the
national budget to local governments. This way, decentralized planning and budgeting
remains critical to the rationalization of LG financing.
This Chapter reviews the LG annual planning and budgeting cycle and the national
budget process to the extent that value is added by their harmonization. This review
examines gaps in the process that may need to be addressed to improve effectiveness in
local government financing for the enhancement of services delivery. The review assesses
the continued relevance of the key components of the planning and budgeting cycle.
Finally, the chapter ends with short and medium term recommendations on how to
improve the cycle and the alignment of the national and local government annual
planning and budgeting process to improve local service delivery.
5.1.1 Harmonization the central and local government planning and budgeting cycle Entrenched in the 1995 Constitution (Article 176 (2e), Uganda’s decentralisation policy has
guided the establishment of44 LGs with autonomy to initiate, plan and execute policies
affecting the people within their jurisdiction. Accordingly, LGs are responsible for their
planning and budgeting process45. Over the years, Central Government has provided
guidelines to higher and Lower Local Governments to guide their planning and budgeting
activities. Various other legal provisions support the local government planning and
budgeting process including its linkage with the national process. Section 35 of the LGA
(Cap243) expounds on the LG function for planning and its link with the national planning
process. Section 77 of the LGA (Cap243) explains the budgetary powers of local councils
and the link between the budget and the national priorities. This integration is also
supported by the Budget Act (2001) and supplemented by the Local Governments
Financial and Accounting Regulations (2007) along with its supporting manual.
The Budget Act (2001), sets the pace for the national budget cycle specifying the key
dates in the national budget calendar. The FDS (2002)46 required harmonization of the LG
planning and budgeting cycle so that the LG budgeting process “provides feedback and
impacts upon the National budget”.
The harmonization of the LG and Central Government (CG) planning and budgeting
processes was done primarily to serve two key reasons:
44 The Constitution, article 176 45 Sections 35 and 77 of the LGA(Cap 243)
Chapter 4 of the Fiscal Decentralisation Paper, May 2002 page 25
Page 47 of 150 FINAL Draft Report
a) to link resource allocations strategically with national priorities through the Medium
Term Expenditure Framework (MTEF); and
b) to reform the general apparatus of public expenditure with the aim of ensuring
efficient and effective use of public resources through increased transparency and
accountability between the centre and LGs.
This harmonization was to further strengthen the alignment of both processes with the
Budget Act. Another crucial objective of the harmonization was to strengthen the
integration of planning and budgeting processes. This was supposed to enable updating
of the DDP and its linkage with the LGBFP. To facilitate this harmonization, the FDS
established the LG Budget Committee (LGBC)to coordinate the key actors relating to the
LG annual planning and budgeting processes within Central Government and with local
governments and to promote dialogue on local government budget issues at the national
level.
5.1.2 Progress on the Implementation of FDS The MoLG working with LGFC provided LG with technical and easy-to-use guidelines on
how to conduct the planning and budgeting processes at all levels47. In addition to this
various activities have been implemented since the adoption of the FDS:
a) The budgeting process was revised in accordance with FDS principles of LG
autonomy and participation.
b) Guidelines for planning and budgeting for HLGs were prepared and disseminated.
c) Other guidelines have covered participatory planning, district development
planning, and FDS budget formulation guidelines.
d) The link between the DDP and LGBFP was firmly established.
e) The LGBC regularly identifies issues from LGBFPs which are included in the national
BFP.
f) The harmonization of the LG and CG budget planning and budget cycles has been
further elaborated upon by the Local Governments Financial and Accounting
Manual (revised 2007).
g) The budget was considerably reformed to become more result oriented particularly
through the introduction of output oriented budgeting and the use of Performance
Form B in 2009/10.
A key improvement brought by this harmonization is the increased engagement that LGs
now have with the Central Government through regional and national budget
conferences.
The harmonization of the LG and CG budget cycle has supported the realization of
smoother intergovernmental fiscal relations.
Since 2002 when FDS came into force there has been increased transfer of resources to
LGs albeit with challenges of insufficiency.
Another positive result is the participation of LGs in a process of negotiations with the
Central Government that provides LGs a further platform for interaction with a
purpose of strengthening systems for more effective ways of implementing programs
using conditional grants.
The harmonization of the two cycles has organized and increased responsiveness
between central and local government – with event timelines.
47These participatory planning and budgeting manuals have been essential in providing clarity on how to conduct activities further aided
by translation of these guidebooks into the local languages.
Page 48 of 150 FINAL Draft Report
There is in place an annual comprehensive national districts performance assessment
with rewards and sanctions based on performance results which has generated peer
competition and focus on areas for improvement.
5.2 Findings relating to the Local Government Planning and Budgeting process
Efforts to integrate the annual planning and budgeting processes at the national and local
government levels still face challenges. These include the following:
a) Communication and feedback to local governments
b) Funding for the planning and budgeting process
c) Timelines in issuing indicative planning figures and budget guidelines.
5.2.1 Communication and Feedback to LGs by Central Government
Whereas consultations, workshops and conferences are required to follow the bottom-up
planning and budgeting approach there is a general feeling by LGs that their input at the
various planning and budgeting fora do not find their way into the national budget
framework. Some of the LGs visited felt that consultations with sectors on service
programmes are not effective. On the other hand, sectors say they carry out several
reviews and consultations as part of the process of formulation of the Sector Budget
Framework Papers. The sectors admit that the consultations are made with a sample of
LGs given shortfalls in logistics and financial resources to adequately undertake this
process.
The dissatisfaction of LGs in the planning and budgeting processes is mostly a result of
inadequate communication and provision of feedback by the Central Government MDAs.
Most of the LGs officials interviewed during the field visits said they were not clear about
the changes to their planning and budgeting activities as a result of the new framework
under NDP. Furthermore, when LGs submissions are not included in the final national
budget this is interpreted by LGs as rejection of their inputs whereas in reality the national
budget is a result of consultations with various stakeholders on their priorities.
5.2.2 Funding to the Planning and Budgeting Process
The current bottom-up annual planning and budgeting framework enables participation
of LLGs in a manner that allows their local service delivery needs to be reflected in the
District Development Plans. Linking the LG and CG planning cycles is intended to make
the government more responsive to local needs by strengthening the linkage between LG
and Sector plans. The five-year plan presents an opportunity to LGs to keep a medium
term development focus while refreshing the annual plans with new priorities from LLGs
and changes in national priorities.
However, LGs are experiencing difficulties in financing this participatory planning and
budgeting process. The annual LG planning and budgeting process is mainly financed by
local revenues. Over the last decade, local revenues have continued to decline posing a
challenge to this process. The Local Government Act (Cap 243) requires HLGs to share
revenues with LLGs where the latter retains 65% of revenue to facilitate among others the
planning and budget process. All LGs visited during the study reported that due to
inadequate local revenues, LLGs have not been able to submit their development
priorities to be consolidated in the district or municipality development plans in a manner
that is as comprehensive as would be desired. This state of poor planning has been
Page 49 of 150 FINAL Draft Report
identified by the MoFPED48 as “a significant bottleneck” responsible for low absorption of
grant financing in local governments. A study49 conducted by LGFC in 2009 to assess the
HLGs and LLGs financial capacity to implement a participatory budgeting system
disclosed a 22% gap (see Table 5.1 below) in financing of the budgeting and planning
process as elaborated by the table below:
Table 5.1 Gaps in Financing of a year’s Planning and Budget Process in a Typical District
Planning and Budget Process Costs in UGX for
a typical LG in a
FY
%
funded
by LG
Funding Gap
(%)
Community Consultation 3,967,583 56% 44%
Compile LLG Development activities into
DDP 5,177,025 94% 6%
Examination of draft Budget Framework 3,308,167 83% 17%
Holding of National Budget Conference 2,585,833 67% 33%
Regional Local Government Budget
Framework Paper workshops 2,868,813 88% 12%
Set inter-sectoral priorities and fix inter-
sectoral allocation 3,588,375 90% 10%
Prepare and circulate budget call
circulars 1,576,458 59% 41%
Identify LLGs investments and prepare
development budgets 1,833,333 60% 40%
Compile LLG development activities into
DDP 5,177,025 90% 10%
Review development plans 857,917 64% 36%
Examination of draft framework paper 3,308,167 94% 6%
Holding of Budget conference 4,840,417 80% 20%
Incorporate input from Budget Framework
Paper 674,167 76% 24%
Approval of Budget Framework Paper
and draft budget 3,986,250 86% 14%
Overall monitoring 4,000,000 80% 20%
Total 67,750,030 78% 22%
Source: LGFC Study December 2009
As can be seen from Table 5.1, financing of activities during community consultations
exhibits the highest financing gap of (44%) followed by the related stage of preparing and
circulating budget calls as well as the process of identification of investments and
preparation of development budgets at LLGs. While it is understood that LG revenue is
limited, it was suggested by LGs that an allocation under PAF monitoring non-wage be
provided to ease the financing gaps in this process.
5.2.3 Timeliness in issuing Indicative Planning Figures Indicative planning figures (IPF) are used by the Central Government to inform LGs about
the level of budget provisions for grants that are planned for a given year. These figures
48 Absorptive Capacity constraints, the causes and implications for budget execution, MoFPED, 2011 (Section 4.2)
49 The study was titled: Assessment of HLGs and LLGs financial capacity and participatory budgeting systems by DCI Consulting
firm in 2009
Page 50 of 150 FINAL Draft Report
are to be provided to LGs, along with budget guidelines, early in the budget cycle to
facilitate their budget formulation process. IPFs for individual LGs are determined by MDAs
following sector ceilings issued to them by MoFPED. Issuing the IPFs is the responsibility of
MoFPED. About 35% of respondents (See chart below) in the survey identified the delay in
issuing final IPFs as a major constraint to their planning and budgeting formulation process.
Fig 5.1: Factors that LGs felt are constrains the planning and budgeting process
Budget Call Circulars were issued to LGs 3 times in the course of preparing the FY 2012/13
budget; i.e. in November 2011, April 2012, and May 2012. The first two issues required LGs to
use provisions for FY 2011/12 for IPFs while the third issue included new IPFs. A final set of IPFs
was issued in June following presentation of the Budget to Parliament. The table below
examines changes in levels of IPFs for 5 of the districts visited in the study. For each district,
changes in IPFs are examined for 5 grants; unconditional, UPE capitation, PHC non-wage,
rural water and sanitation and Community Development workers grant (CDW).
Table 5.2: Percentage Change in FY 2012/13 Issued for some grants in selected districts
Soroti Arua Kisoro Namayingo Wakiso
1st to
2nd
IPF
2nd to
3rd IPF
1st to
2nd
IPF
2nd to
3rd IPF
1st to
2nd
IPF
2nd to
3rd IPF
1st to
2nd
IPF
2nd to
3rd IPF
1st to
2nd
IPF
2nd to
3rd IPF
Total - All
grants 19% 7% 4% 5% 8% 17% 7% 6% 9% 2%
UCG - Non-
wage 8% -12% -1% -1% 0% -1% -6% 0% -1% 4%
UPE Capitation 3% 0% -2% 0% -1% 0% 11% 0% 1% 0%
PHC non-wage 0% 0% 35% 0% 0% 0% 0% 0% 0% 0%
Rural Water 102% 9% 19% 9% 0% 16% 0% 17% 0% 17%
CDW 36% 3% 58% -16% 23% 3% 26% 3% 54% -13%
Source: Field Survey – primary information
MOFPED should issue the MTEF in time to enable MDAs provide the IPFs to ensure that LGs
receive them in time to facilitate their planning and budgeting formulation processes.
Uncertainty in IPFs encumbers LGs in their decisions as they prepare their budgets. The
table above reflects that there were always changes in the levels of IPF from one issue to
another. However, these changes have been generally small, except for Water and CDW
grants. IPFs for PHC and UPE, some of the key service grants, have remained largely stable.
The changes have also generally reflected increments rather than reductions. In this
Page 51 of 150 FINAL Draft Report
regard, changes introduced by IPFs may not be significantly disruptive to the LG budget
process.
5.3 Central and LG Planning and Budgeting cycle under FDS (2002)
In a bid to implement a core tenet of FDS, GoU harmonized its planning and budgeting
cycle with that of LGs to achieve the following two major aims: realistic budgeting through
an integrated 3-year budgeting system; and focusing on the intended results of
expenditures i.e. setting objectives and targets for measuring budget performance.
The FDS elaborated three tools in the budgeting process: The District/Urban LG
development plan (DDP); The Local Government Budget Framework Paper (BFP) and the
budget with an annual work plan (AWP). The planning and budgeting cycle for LGs
involves broadly a 3-stage process: preparation for the budget process; preparation of the
Local Government Budget Framework Paper and finalization and approval of the Annual
Work-plans and Budget. To satisfy these three stages, a series of activities take place in a
step by step and self-reinforcing sequence that was linked to the national process in a
manner that made holistic the national planning and budgeting cycle. At the inception of
the FDS the following were the main stages of the harmonized central and LG planning
and budgeting cycle.
STAGE 1 PREPARATION OF THE BUDGET PROCESS
Step 1: Meeting of the Local Government Budget Committee (September)
Step 2: Holding of the National Budget Conference (October)
Step 3: Holding of Regional Local Government Budget Framework Paper Workshops
(October)
Step 4: Issuing of Local Government Budget Call Circular (Early November)
STAGE 2 PREPARATION OF THE LG BFPS
Step 5: Preparing Sector and LLG inputs for Development Plans (Early November)
Step 6: Sector Departments prepare input for LGBFP (November)
Step 7: Sector Committees review sector input to the BFP and Development Plan
(November)
Step 8: Compilation of draft Budget Framework Paper and a TPC reviews them (Early
December)
Step 9 EC & C/persons of Sector Committees and HoDs review the draft BFP and DDP
(December)
Step 10: Holding of Budget Conference (December)
Step 11: Finalization of the BFP and submission to MoFPED (January to May)
STAGE 3 APPROVAL OF THE BUDGET AND ANNUAL WORKPLANS
Step 12: MoFPED reviews LGBFPs and drafts budgets and set final budget ceilings (January
to May)
Step 13: Budget Desk revises BFPs and draft budget (May)
Step 14: Sector committees review final draft annual work-plan and budget (Beginning
June)
Step 15: Reading and approval of budget by Council (Before 15th June)
The following chart presents a diagrammatic flow chart of these stages and they followed
on another:
Page 52 of 150 Final Draft Report
Fig 5.2 Original Steps of the harmonized central and LG annual Planning and Budget cycle under FDS (2002)
Page 53 of 150 FinalDraft Report
5.4 Review of implementation of the Annual Planning and Budgeting Cycle
The ToRs required the consultant to review the continued relevancy of the components of
current budget cycle with a view to proposing amendments or improvements to address
the emerging challenges.Through consultations with stakeholders including local
governments, most of the respondents in LGs that were visited, especially District Planners,
CAOs and Sub-County Chiefs agreed that the cycle is quite sufficient and does not need
substantial alternation. The gist of this cycle is for LG to harmonise their planning and
budgeting processes with those of the Central Government making the latter more
responsive to LGs fiscal aspirations- which is a fundamental aspect of fiscal
decentralization. As was pointed out in Chapter 3, this is an area under FDS that
performed relatively well over the last 10 years. But through the study’s consultative
process, proposals for improvement were made to further strengthen the cycle as below:
a) LGs will now develop and follow a 5 year plan in consonance with the National
Development Plan as opposed to a three-year rolling plan but nonetheless operative
with the MTEF modalities. The National Planning Authority should develop and
disseminate guidelines to guide LGs to this effect;
b) A new stage in the cycle is proposed to be added to allow Local Government
Finance Commission to effectively provide input to the budget process in
accordance with its mandate as stipulated under Article 194 (4a) of the Constitution
of the Republic of Uganda.
c) Overall it was important that actual calendar dates are emphasized in the cycle
and all LGs strictly adhere to the dates. This aspect would instil compliance and
reduce late performance on stage milestones across all LGs. In light of this the
following stage dates are proposed:
i. This review proposes that consultations with LLGs starts in August to allow
more time or a more comprehensive engagement of the citizenry in villages;
parishes, wards and cells.
ii. By August 30th LGs should have received guidelines on the budget process
from LGBC
iii. Holding Conditional Grant negotiations much earlier in the process by the
middle of September;
iv. Regional Workshops shall be held in all regions by September 30th
v. Issuing of LG Budget Call Circular to all heads of department and LLGs will be
done by 10th October;
vi. Holding of the District Budget Conference must have taken place by
November 30th
vii. All CAOs must have submitted Drafted BFPs to MoFPED, LGFC and ministries
by December 31st
viii. The National Budget Conference should be lengthened to cover 2-3 days to
allow more meaningful deliberations and debate on LG financing and other
matters;
ix. MoFPED will table the consolidated draft National BFP (NBFP) to Cabinet by
March 15th and Parliament by April 1st
x. Between April 1st and May 15th the MoFPED should have received input from
reviews undertaken by LGFC, Cabinet and Parliament and sent IPFs and final
grant ceilings to LGs
xi. The LG budget will be layed before Council by 15th June
xii. Approval of LG budget as the last item of the cycle must happen by 29th
June on assumption that Parliament has approved the national budget as is
proposed under the Finance Bill.
The table below shows these changes
Page 54 of 150 Final Draft Report
Table 5.3 Proposed Annual Planning and Budgeting Cycle
INITIAL CYCLE STAGES Current
Stage Dates
PROPOSED NEW
CYCLE DATES
Action Required to generate the new 19 stage-cycle
1. LGBC agrees on rules &
conditions of budgetary process
September By August 30th 1. LGs to ensure that they have obtained guidelines and
conditions from LGBC on the planning and budget
procedures by August 30th
By September 1st 2. LGFC provides advice to Central Government on the
sharing of national revenues between the central and
local governments.
2. Hold Conditional Grants
Negotiations between Sector
ministries and LGs
October Mid September 3. Purposely to agree on guidelines for budget formulation
and implementation
3. Holding of regional LG Budget
Framework paper workshops
Early
October
By September
30th
4. At the Regional Workshops a memo is discussed showing
technical guidance and communication from MoFPED,
LGFC and other stakeholders
4. LG EC meets to determine inter-
sectoral priorities as identified in
previous DDP
Early
November
By 10TH October 5. LG EC now will identify priorities for that financial year in
line with the longer term 5 year Development Plan
5. Budget Desk prepares the LG
BCC & circulates to HoDs & LLGs
Early
November
By 30th October
6. Budget Desk prepares the LG BCC & circulates to HoDs &
LLGs
6. Sectors start preparing inputs to
BFP
Mid
November
7. Sectors start preparing inputs to BFP
7. Identification of investments &
Preparation of draft DPs
Late
November
8. Identification of investments & Preparation of draft DPs
8. Examination of Draft Sector BFPs
by sector standing committees
Early
December
By November
10th
9. Complete Drafting of the BFP and the years DDP (which is
an extract of the 5 year plan) for review by the TPC
9. Complete drafting BFP for review
by TPC
Early
December
10. DEC meeting with C/Persons of
SSCs & HODs to examine Draft
Mid
December
By November 15
st
10. Stage name unchanged (DEC meeting with SSCs and
Heads of Departments to examine draft BFP and DDP)
Page 55 of 150 Final Draft Report
INITIAL CYCLE STAGES Current
Stage Dates
PROPOSED NEW
CYCLE DATES
Action Required to generate the new 19 stage-cycle
BFP & DDP
11. Holding and District Budget
Conference and Council Adopts
the Local Government BFP
Late
December
By November 30th 11. Stage name changed from holding of District Budget
Conference for stakeholders’ views and input into the
BFP
12. Budget desk incorporates inputs
from Budget Conference
Late
December
By 31December 12. Stage name unchanged (Budget Desk Incorporates
inputs from the Budget Conference finalizing the BFP
and DDP)
13. Holding of the National Budget
Conference
Early
January
By 15th February 13. The National Budget conference should be a 2-3 day
event to comprehensively engage LGs on the process
14. MOFPEC examines LG BFP & draft
Budget
January to
May
Between March
15th and April 1st
14. By March 15th MoFPED submits revised BFP to cabinet
and by 1st April to Parliament so at the last consultations
with cabinet and Parliament end by April 30th
15. New Stage
LGFC conducts analyses local
government financing and inputs
Between Feb 15th
and 15th Marchth
15. LGFC conducts analytical works on LG financing and
inputs from this process submitted to MoFPED before
discussion by Cabinet and Parliament
16. Budget desk incorporates Grant
ceiling & comments from
MOFPED
May By 15th May 16. LGs receive IPFs from MoFPED and incorporate final
grant ceilings and comments
17. SCC reviews final Annual Work
Plan & Budget
Early June By June 1st 17. LGs SSCs and Finance Committee jointly examine the
AWP and Budget
18. Laying of Budget before Council By the 15th of June 18. Laying of Budget before Council
19. Approval of the budget Before
30thAug
By the 29th of June 19. Reading and Approval of LG Budget on assumption that
Parliament implements new aspect of Budget Act to
approve national budget by June 29th
Page 56 of 150 Final Draft Report
Fig 5.3 Illustration of Proposed Revision of the central and Local Government Annual Planning and Budget Cycle*
*The dates proposed on this cycle have been arrived at in line with the prevailing realities and current practices over the last
decade. Emphasis is being placed on the provision of more time for LGs to o improve planning and budgeting and in
particular the involvement of LLGs. The proposed Finance Bill aims to bring forward the approval of the national budget to 31
May and the entire budget preparation process will be accordingly shifted to comply with this timeline. The local
governments’ budgets preparation process will similarly be affected.
LGBC agrees on rules and conditions of the budgetary Process which are sent out to all LGs (BY AUGUST)
Departments prepare inputs into the BFP by identifying investments. At the same period Sector Standing Committee begins work on drafted sector BFPs. During this period, HLGs receive and incorporate inputs of LLGs into the BFP (Between 15TH – 30TH OCTOBER)
Complete Drafting of the Budget Framework Paper and the year’s District Development Plan (with is an extract of the 5 year Plan) for review by the Technical Planning Committee (BY 10TH NOVEMBER)
LG Executive Committee and Chairpersons of the Sector Standing Committees as well as Heads of Department examine the final Draft of the BFP and DDP (BY 15TH NOVEMBER)
Holding of the District Budget Conference for Stakeholders’ views and input into the BFP (BY 30TH NOVEMBER)
Approval of Budget and end of the cycle (BY 29TH JUNE) on the assumption that Parliament has approved national budget
LG Sector Standing Committees and Finance Committees jointly examine the AWP & Budget (BY 1st JUNE)
LGs receive IPFs from MoFPED and incorporate information on Grant ceilings and comments (By 15TH May)
Between Feb 15th and April 30th LGFC conducts analytical works on LG financing for input submitted to MoFPED by April 30th
Holding of the National Budget Conference (BY 15th Feb)
Budget Desk Incorporates inputs from the Budget conference and CAO submits BFP to MoFPED then to LGFC and sector ministries (BY 31 DECEMBER)
Holding of all Regional Workshops where contents of the Local Government Budget Framework Paper and discussed (BY 30TH SEPTEMBER)
LG Executive Committee meets to determine priorities as identified in the 5 year Development Plan for the particular financial year and issue of the Budget Call Circular (BY 10TH OCTOBER)
LGFC provides overall guidance of the Budget Process and a memo for dissemination at LG regional Workshops (BY 1ST SEPTEMBER)
MoFPED examines the LG BFPs and Draft Budgets and submits to Cabinet by March 15th and to Parliament by April 1ST
Holding Grant negotiations between sector ministries and LGs (BY MID-September)
Page 57 of 150Final Draft Report
5.4.1 Overall Challenges in the LG Planning and the Budget Process As can be seen from Table 5.1 some improvements are proposed to the planning and
budgeting cycle in line with consultations with officials in LGs and other stakeholders during
this study. These are elaborated below:
a) The National Budget Conference is now being held in January as opposed to
October in the financial year - a change that was done before this study at the
beginning of the 2010/11 FY. This reform in the cycle allows the sectors more time to
draft sector BFPs and for LGs to hold their own District Budgeting Conference so that
at the time of National Budget Conference all LGs and Sector BFPs are almost at the
final stage by 1st February. This was also done to enable the conference discuss
issues raised by local governments in the regional budget conferences. This review
study, however, noted that not much time is provided at the National Budget
Conference to discuss issues affecting local government. It is therefore proposed
that the conference is held for a period of 2-3 days so that more time is given to LGs
to present their issues so that they are subjected to serious debate and
consideration.
b) Negotiations are held between CG ministries and LGs with a view of coming up with
a transparent and effective system of implementing programs funded using
conditional grants. This process is currently not given serious attention as is evidenced
by the junior staff that some ministries send to these meetings. It has been proposed
in Table 5.3 – Stage 2 (above) that the negotiations be held before the MoFPED
issues the first Budget Call Circular.
c) Delays and abrupt alterations of Indicative Planning Figures (IPFs) is a major
complaint of LGs. MoFPED and MDAs should commit and issue IPFs on time. It is
proposed therefore, that final IPFs to LGs are consolidated by MoFPED and sent to
LGs by 30th March and approved by April 30th and no further alterations to IPFs are
made thereafter;
d) Feedback to Lower Local Governments on unfunded priorities.It was also observed
that at the stage of the review of final Annual Work Plan and budget, feedback
should be given to LLGs regarding the justification for not funding some of their
identified priorities. In most cases this is not being done which in many ways dilutes
communities’ trust in the process.
5.5 Key recommendations
Basing on the challenges presented in 5.3.1 above, the study presents recommendations
listed below.
a) Annual Local Government planning and budget cycle
The proposed Finance Bill should include timelines for issuing budget guidelines
including IPFs.
b) Integration between national and local government planning and budgeting
processes
NPA and MoFPED in consultations with the LGBC should review and align the LG
planning and budgeting framework to conform with the new planning and
budgeting processes under the five year NDP. Appropriate guidelines therefore
need to be developed and disseminated to support LGs in the implementation of
an integrated process into the NDP. Where necessary LGs should be assisted to
implement the new framework.
Page 58 of 150Final Draft Report
The LGFC needs to be provided further support to strengthen the Local
Government Budgets Committee (LGBC) to coordinate activities relating to LG
planning and budgeting activities for inclusion in the national budget. The
Committee functions and reporting arrangements need to be re-stated and
more funding provided for the Committee to follow-up the implementation of its
decisions.
Provide guidance and earmark some of the shared revenues to go towards
planning and budgeting activities LLGs, where necessary, to ensure that they
submit their plans and budgets on a timely basis to be included in those of the
districts and municipalities. The support should first target particularly poor
performing LGs in terms of involving LLGs.
Implement recommendations of the MoLG Annual Assessments of LGs so that LGs
identify where they need assistance.
In preparing annual budgets LGs should consider accounts in arrears, outstanding
liabilities and guarantees. Internal audit should validate the arrears, liabilities and
guarantees at the end of each financial year before they are fed into the
following year’s budget. Arrears, liabilities and guarantees should be included in
the LGs BFPs.
While funding remains meagre for the planning and budgeting process at LLGs,
more transparency is required in the display of revenues collected and the
proportion (65%) retained by LLGs partly to support this process. Internal audit
should as part of its annual audit programme conduct a revenue collection
performance audit and report to the District Council on its findings.
All the above recommendations do not require drastic revision of the existing laws except
for the recommended merger of the Public Finance and Accountability Act and the
Budget Act. In cases where support to LGs is recommended, targeted areas of weakness
should be addressed on a case by case basis rather than provide holistic support. The
recommendations can be accommodated through the update of the current regulations,
procedures and guidelines.
Page 59 of 150Final Draft Report
6 RELEASES, REPORTING AND ACCOUNTABILITY MECHANISMS
6.1 Introduction
Releases are cash provisions of grants which Central Government transfers to local
governments in the course of executing their budgets, to be applied to expenditures
under their programmes in line with their approved work plans. Releases, reporting and
accountability mechanisms play an important role in ensuring that financial resources that
are availed to LGs in time; are used effectively and efficiently; and are reported on timely
basis and attain value for money. Financial and other non-financial reports provide LG
Councils and sector ministries with the data that is used to monitor the implementation of
LG programmes towards achieving their agreed objectives. Accountability mechanisms
are institutional arrangements used to track and record expenditures made by the LG and
to generate periodic accounting reports. Accountability mechanisms also involve
oversight arrangements used to ensure the application of appropriate control measures to
minimise fiduciary risk in the utilization of LG resources. The releases, reporting and
accountability mechanisms are anchored in the Local Governments Act and the
supporting Local Government Financial and Accounting Regulations. The above
legislative framework is further supported by directives and guidelines that are issued by
the MoFPED, MoLG and sector ministries from time to time. All these are done in the spirit
of improving service delivery in the LGs.
The Fiscal Decentralisation Strategy (FDS) underlined the need to reform releases, reporting
and accountability mechanisms to improve efficiency in the transfer system and its support
to the implementation of local government programmes. This chapter therefore examines
the implementation of FDS, the architecture in place for efficient releases, effective
reporting and strong accountably of LG resources, highlighting the trends of all the three
over the period under review. It also brings out the practical realities on the ground and
suggests remedial measures to make them more efficient and effective.
6.2 FDS and release, reporting and accountability mechanisms
The FDS was concerned about inefficiencies in the release, reporting and accountability
mechanisms which would hamper the effectiveness of reforms in the grants transfer system
and their impact on services delivery. These reforms entailed restructuring the grant system
to limit the number of conditional grant to two per sector; one for recurrent and another
for development. In turn, two systems for transferring these grants were to be used; the
Recurrent Transfer System (RTS) comprising conditional grants across all sectors and the
Development Transfer system (DTS) for development conditional grants. To support further
improvements in the transfer system, the following reforms were to be implemented
To reform the release system to match the transfer mechanisms and to increase
efficiency in responding to LG spending plans
to reduce the number of bank accounts maintained by a LG to one per sector and two
others, one for salaries and another for donors to improve capacity of LGs for
maintaining their books of account and reporting on financial and output
performance
As discussed under Chapter 3, the grants system was not reformed as was proposed under
the FDS. However, the number of bank accounts has been reduced to one per sector
resulting in a total of 12 per LG50 plus additional specific accounts for some government
50 Section 6.2.5.1 of the Local Government Financial and Accounting Manual , 2007
Page 60 of 150Final Draft Report
programmes like NAADS, LGMSD, CAIIP etc. Reforms have also taken place to the release,
reporting and accountability systems. These are discussed below.
The section that follows reviews the design of the release, reporting and accountability
systems and considers the reforms introduced under the FDS to these systems and current
practices in their implementation. It examines the practices and identifies gaps that will
need to be addressed to improve their efficiencies in supporting local government
financing.
6.3 Releases
Within the context of local government financing, the system of releases is critical to
transferring cash provisions of Central Government grants to local governments to be
applied to expenditures under their programmes.
The release system involves Central Government - MoFPED working with sector ministries,
identifying and transferring cash provisions under unconditional, conditional and
equalisation grants to HLGs on a regular basis. MoFPED advises sectors ministries on the
cash provisions available, ministries prepare schedules advising MoFPED on the level of
releases to each LGs, MoFPED in turn prepares and effects disbursements to LGs. In
general, out of these releases, LGs are expected to disburse non-wage or development
provisions to LLGs or service delivery units (schools, hospitals) as the requirement of the
grant may be, and to make payments to beneficiaries (salaries) for wage grants. FDS51
was concerned about the effectiveness of the release system which was based on
monthly transfers to LGs. The system severely limited the flexibility for in-year planning for
LGs particularly for development expenditures. Delays in making transfers were rampant
with LGs receiving funds considerably late. This was limiting their capacity to absorb these
funds and to use them efficiently. FDS proposed to reform the system to introduce
quarterly releases and reporting for development expenditures. The system was to
maintain monthly releases for recurrent expenditures including wages, but report on
quarterly basis.
Since the passage of the FDS, various reforms to the release system have been
implemented:
In 2003, MoFPED introduced reforms to improve efficiencies in releases of non-wage
grants under Poverty Action Fund (PAF)52. The new system required releases relating
to PAF grants to be made on quarterly basis supported by LG annual work-plans and
quarterly progress reports53. Releases for wage and other non-wage grants
continued to be made on monthly basis
In 2003, the Government established the Local Government Release Operating
Committee (LGROC) to facilitate coordination across institutions involved in releases
– MoFPED, sector ministries, MoLG, MoPS and LGFC, to reduce duplication and
improve efficiency in operations of releases
In 2003, MoFPED introduced integrated financial management systems in 8 LGs. Districts
with access to the IFMS are able to view the releases made instantly
In 2008 - the Government introduced the straight through payments (STP) system
enabling direct payments of salaries to government staff (including teachers and
health workers) across all LGs. The implications are that MoFPED does not need to
release wage related grants to HLGs anymore.
51 Section 5 of the Fiscal Decentralisation Strategy, 2002 52 PAF was set up in 1998 by the Government identifying savings under the Heavily Indebted Poor Country (HIPC) initiative and to
channel them directly towards priorities for poverty reduction under the Poverty reduction Action Plan (PEAP). 53 See PAF General guidelines for planning and operation of Conditional grants
Page 61 of 150Final Draft Report
In 2009, MoFPED introduced performance measures to link output to expenditures in
LGs54. The new measures introduced a result orientation to the budget across all
sectors. Along with this, the MoFPED provided new guidelines covering all releases
and replacing the PAF guidelines above. The guidelines extended quarterly releases
to non-wage recurrent expenditures. LGs are required to submit quarterly reports
(Form B55) in order to access the release. The guidelines56introduced the concept of
a “quarter lag57” allowing LGs more time to collect information on performance from
service delivery units and LLGs and to compile reports.
In 2011, Government introduced automatic releases to LGs removing reporting as a
trigger of releases. Non reporting would be sanctioned by MoLG an OPM by
targeting the defaulting Accounting Officers. Sector ministries are required to report
the non-compliant LGs to the authorities empowered to take the administrative
measures.
6.3.1 Key findings in the release system Respondents in the study reported significant improvement in the release system as a result
of the reforms above; both the quarterly system and direct payment system have
improved the predictability of releases. However, there remain issues related to (a),
implementing the guidelines, (b) delays in releases, (c) managing balances that remain
unspent at the end of the financial year, (d) multiple release transfer systems, (e)
synchronising releases and service delivery cycles, and (f) releases channelled through LGs
to service delivery units. These issues are discussed further below
a) Implementing the quarterly release guidelines
Procedures under the Revised guidelines on releases to Local Government issued by
MoFPED at the beginning of 2010/11 require LGs to provide work plans and reports (Form
B) as a basis for sectors to determining the release for the following quarter by the Sector
(see also box 6.1)
Box 6.1: Extract from Revised Guidelines on releases to Local Government in FY2009/10
Section 3.4: Procedure to process releases at the Central Government level
i) After receiving the work plans and reports (Form Bs) from local governments, the
MoFPED will confirm consistency of the soft and hard copies before sending the soft
copies to the relevant sector Ministries by email.
ii) The sector Ministry will extract the relevant departmental work plan(s) and progress
report for review and analysis and advise MoFPED by 10th day of the first month of the
quarter;
iii) The MoFPED will effect the release to the local governments on a quarterly basis by
15thday of the first month of the quarter. The releases will be effected once in that
quarter.
iv) If a local government fails to submit the work plans or progress report in that quarter
on time, no release will be made for that local government. Such a local
government will receive the release in the next quarter.
v) The action in (iv) notwithstanding, the release for the subsequent quarter will include
all the funds not released in the previous quarter up to the cumulative cash limits.
These procedures were put into effect in 2010/11. However, following a Presidential
Directive barring the use of progress reports (Form B) as conditions for release (see iv in box
54 See Performance Contract Form B release modality, Revised guidelines on releases to local government, FY209/10 55 Form B was introduced to report on both financial and non-financial performance on quarterly basis 56 General guidelines on modalities for reporting and release of funds to Local Governments, 2009 57 Under the “quarter lag” arrangement, releases are based on the reports of the quarter before the previous, this quarter release
is based on first quarter reports.
Page 62 of 150Final Draft Report
above), MoFPED no longer enforces these procedures. Rather, in 2011/12, release have
been made regardless of receipt of reports by LGs. Sectors have raised concern about
falling standards in LG reporting impacting negatively on their monitoring role over service
delivery
b) Disbursing releases
Under the quarterly system, MoFPED is required to effect releases to LGs by the 15th day of
the first month of the quarter. Using EFT, the transfer is made through the banking system
taking up to 1-2 days. In the worst circumstances, LGs should receive releases within 3-4
weeks from the start of the quarter. The table below shows the experience for the period
2011.
Table 6.1 Illustration of period Between Release and Receipt of non-wage grants in Wakiso LG
QUARTER DATE OF RELEASE
(Source – MoFPED)
DATE OF
RECEIPT BY
WAKISO LG
Period
between
release
and
receipt
(weeks)
Period
between
start of
quarter and
receipt of
funds.
Financial Year 2011/12
Qtr 1: Jul-Sep ‘11 PAF / Non-
PAF 20/07/2011 09/08/2011 3 6
Qtr 2: Oct-Dec
‘11
PAF / Non-
PAF 20/10/2011 02/11/2011 2 5
Qtr 3: Jan-Mar
‘12
PAF / Non-
PAF 16/01/2012 01/02/2012 2 4
Qtr 4: Apr-Jun ‘12 PAF / Non-
PAF 10/04/2012 08/05/2012 4 5
Average delay in releases across the Financial Year 2011/12 3 weeks 5 weeks
Source: MoFPED and Wakiso LG
Releases are made separately for recurrent and development grants. This table refers to
non-wage recurrent releases only. In the table, the date of release is the date of MoFPED’s
letter effecting the release. The date of receipt by Wakiso District is when the district
received the money on their general collection account. On average, Wakiso received
cash transfers about 3 weeks from date of release of funds by MoFPED. This period is the
time taken by the Budget Directorate to advise Treasury on the releases and in turn, the
Treasury to advise BoU after which the actual transfer is made to LG accounts. The actual
release advice may come 1-2 weeks later.
c) Un-spent balances
The law (Section 19 of the PFAA-2003) requires LGs to return balances of cash releases
under the conditional grants that remain un-spent at the end of the financial year to the
Central Government (Consolidated Fund). LGs are constrained to absorb cash provisions
in the 4th quarter particularly when releases are made late. This mostly relates to
expenditure that involves commitments and contracting due to inadequate planning and
procurement practices. While the date for mandatory return of unspent balances has
been relaxed58 to allow LGs to retain funds where they have entered into commitments by
June 30th, there is a danger that the funds may not be utilized for the right purposes as
58See paragraph 133 of the budget speech for 2010/11
Page 63 of 150Final Draft Report
there may be rush spending of unutilized funds at the end of the financial year. Despite
this, there is still evidence of funds that remain unutilised as shown in the table below.
Table: 6.2 Unspent balance on development releases for selected districts for FY2010/11
(Shs ‘000)
Local Government
Development
Releases
2010/11
Unspent
balances (Devt)
2010/11
Proportion of unspent
balances to releases
(development)
Masindi 3,490,818 60,724 1.74%
Kisoro 2,241,636 102,678 4.58%
Mpigi 2,047,230 432,194 21.11%
Soroti 3,461,853 1,196,882 34.57%
Kapchorwa 2,374,190 653,593 27.53%
Arua 7,103,102 373,630 5.26%
Luweero 3,096,057 253,579 8.19%
Kiruhura 2,921,716 59,758 2.05%
Total 26,736,602 3,133,038 11.72%
Source: Form B provided by the districts for 2011/12
In all the districts in the table 6.2 above, unspent balances were under the development
and conditional grants. This indicates that unspent balances are caused in part by the
long procurement / commitment processes. A second emerging issue is inconsistency in
reporting of unspent balances. The records provided by MoFPED for the year 2010/11 show
a total amount of UGX537million for unspent balances. However, indication from the 8
districts in the table above shows a figure in excess of UGX3bn.
d) Transfer system and fragmentation in the release system
The bulk of releases are made by the MoFPED through a single transfer. Up until 2010/11,
funds under the secondary grants were transferred to schools by the sector ministry –
Ministry of Education and Sports however, this has now been shifted to MoFPED. Transfers
under the road maintenance grant areeffected by the Uganda Road Fund, outside the
channel provided by MoFPED. Separate channels of releases are a sign of a fragmented
system and increase transaction costs to the recipient LGs as they encourage multiple
reporting – which is a burden for accounting officers.
e) Release and service delivery cycles
Release to education and agriculture do not match cycles for services delivery. Releases
to the LGs are made on the basis of a quarterly cycle which is out of step with their
spending cycle (academic cycle or agriculture seasons). For example, education grants
are released at the end of the term rather than at the beginning of the term. Sharing
releases across service delivery units is expected to follow guidelines issued for each of the
grants. It is therefore expected that there would be consistency in the allocation of funds
by LGs. However, an examination of releases to some of the schools during 2009/10 and
2010/11 identifies variations in the allocations per child, see table below.
Page 64 of 150Final Draft Report
Table 6.3Variations in the rate per child Applied under Selected schools under UPE Grant
Name of Primary
School Name of District
Enrol-
ment
Fixed
amount Variable Total
Rate
per
student
Transfers in 1009/10
Kashwa P.S. Kiruhura 440 900,000 1,659,706 2,559,706 3,772
Ambalal PS Lira Municipality 1,584 900,000 6,618,309 7,518,309 4,178
Nadunget PS Moroto 350 900,000 2,080,443 2,980,443 5,944
Kichinjaji PS Soroti 1,278 900,000 4,799,282 5,699,282 3,755
Transfer in 2010/11
Kashwa PS Kiruhura 547 900,000 1,944,190 2,844,190 3,554
Ambalal PS Lira Municipality 1,569 900,000 4,742,000 5,642,000 3,022
Kichinjaji PS Soroti 1,467 900,000 5,382,946 6,282,946 3,669
Kifuyo PS Namayingo 1,103 900,000 2,080,000 2,980,000 1,886
Source: Field Data and MoES
The inconsistency in the rates allocated per child identified in the table above is a pointer
to weaknesses in applying the rules provided in the guidelines. LGs may be exercising
discretion in the application of these rules.
f) Releases to service delivery units through LGs
In recent years, the Government began to implement a system of direct transfer of
releases or payments to service delivery units. This has been implemented for staff salaries
through straight through payment and to secondary schools through direct disbursements.
LGs were unanimous that the system of direct transfer has improved the payments.
However, service delivery units, in general were concerned that funds disbursed through
LGs are delayed by up to 3-4 weeks before they are received. Secondly, LGs also raised
concerns that they are often not informed about disbursements to secondary schools;
requisitioning or reporting is not made through them. This however does not apply to staff
salaries. While salaries are paid directly to staff, Central Government releases are based on
the advice and payroll schedulessubmitted by LGs.
6.3.2 Recommendations: MOFPED should continue to implement efforts to improve the timeliness of releases by
complying with the timelines specified in the release and reporting guidelines as well
as the budget execution circular. In this regard, MoFPED should examine the options
to make the quarter 4 releases early, within the first 2 weeks of the quarter at the
latest, to improve utilization of the grant transfer and to minimise the level of funds
returned to the Consolidated Fund when the financial year closes.
Other possibilities could include the commitment of funds early in the year and re-
budgeting for the uncompleted activities in the next financial year. All budgets for
the next financial year should as a starting point include on-going and uncompleted
projects in the current financial year.
LGs should be supported to be able to adequately budget for development expenditure
by producing appropriate procurement plans and the associated cash flow
projections. MoFPED should as much as possible provide LGs with the funds as
requested. Similarly, LGs should commence the procurement process early rather
than waiting to commence it when funds have been received from MoFPED.
Review and reverse the directive withdrawing the use of LG progress reports (Form B) as
conditions for quarterly releases
Page 65 of 150Final Draft Report
End of year procedures which require the return of unspent balances should be clarified
further to ensure there is greater consistence in reporting both by LGs and the
Treasury.
Widen and deepen the direct transfer of funds to all service delivery units. In this regard,
the direct transfer system should be extended to primary schools in the same way as
secondary schools. However, all schedules for payment must be submitted by LGs
on a timely basis. Service units should also be required to file quarterly reports of
performance to LGs who will be given an opportunity to comment on the
appropriateness of the reports.
The Ministry of Education should review the Education Act and issue regulations to
strengthen the reporting arrangements between the head teachers for secondary
schools and the LG administration. This should ensure that secondary schools
transfers are requisitioned by LGs, secondary schools provide quarterly reports to LGs,
and LG increase their supervision and oversight over secondary schools.
6.4 Reporting
The reporting system enables LGs to inform their councils and Central Government about
the utilisation of the financing provided under the grant system. FDS sought to reform the
reporting system to reduce the burden experienced by LGs in preparing various reports to
meet sector requirements. The FDS envisaged a reporting architecture as laid out in Box 6.1
below. The reforms under the FDS were intended to simplify the reporting system to reduce
the number of reports to one common report serving the needs of all sector ministries and
which LGs could use for their reporting needs as well.
Box 6.1: Extract from FDS on the planned reporting architecture under fiscal
decentralisation
Flow of Reports
.
Monitoring & Mentoring
.
Mentoring Only
.
Sharing of Information.
* Accountability Institutions made up of IGG, Auditor General & Office of the Prime Minister, Office of the President
BOX 6D: FRAMEWORK FOR LOCAL GOVERNMENT REPORTING AND FEEDBACK
CENTRAL GOVERNMENT
LOCAL
GOVERNMENT
LOWER LOCAL GOVERNMENTS
DISTRICT/MUNICIPALITY
MFPEDSector Ministries Accountability
Institutions*
1
2
3 3
LGFC MoLG
3
FLOW OF REPORTS AND ACCOUNTABILITY REQUIREMENTS
1. From Lower Local Governments to District/Municipality - Lower local governments will be required to
submit regular expenditure and output reports to track progress in implementing activities
2. From District/Municipality to Central Government - Districts/Municipalities will submit one consolidate
report for the recurrent transfer budget and one for the development transfer budget per quarter to MFPED. This
will consist of a consolidated expenditure report, reconciled with and accompanied by the relevant bank
statements and simple one page output reports for each sector grant.
3. Within Central Government - MFPED will distribute the reports to the concerned sector ministries,
accountability institutions, LGFC and MoLG. Sector Ministries will analyse reports and advise on releases.
MENTORING & MONITORING
From Central to Local
Government - Sector Ministries,
MoLG and Accountability Institutions
all have an important role in
monitoring of local government and
providing technical support and
feedback to local governments. The
importance of sharing of information
and coordination of monitoring
activities will be emphasised and the
LG Operations Committee will play a
lead roll in ensuring this occurs.
Within Local Governments -
Districts/Municipalities are
responsible for monitoring activities
carried out in their local governments,
and for providing technical support to
lower local governments.
Local Gov't Information Centre
There should be a centre in MoLG
or MFPED where all LG
accountability reports, monitoring
reports and other correspondances
are kept. LG and Central Gov't
actors will be able to access LG
information easily.
3
Source: Fiscal Decentralization Strategy 2002
Page 66 of 150Final Draft Report
Since the adoption of the FDS, efforts have been taken to reform the reporting system – in
essence operationalizing steps 1, 2 and 3 in Box 6.1 above. Beginning2004/05, MoFPED
issued guidelines for budgeting under the FDS which included a substantial section on
reporting. The guidelines introduced a concept of financial and non-financial reporting.
The PAF guidelines for planning and operations of conditional grants issued by MoFPED in
the same year further clarified the structure of reports based on the concept of
performance reporting.
The issuing of a one format for LG Budget Framework Paper (BFP) was the first bold step to
establishing common reporting system. The LG BFP provides a section for reporting under
each sector but using standard formats. Most of these efforts have focussed on Step 2 in
the box below but in turn strengthened step 3 supported by the MoFPED’s fiscal
decentralisation unit under the Budget Policy and Evaluation Department. Other capacity
building efforts, under MoLG, have supported the development of work plans and reports
between LLGs and HLGs (step 3)
In 2008, the Government introduced reporting based on Form B59 for LGs (Step 2 in Box 6.1
above) replacing earlier reporting formats under FDS for service delivery reporting. Form B
was designed to provide a direct link between budget allocations and expenditure and
the services delivered. Form B incorporates an annual work-plan, quarterly work plans and
sections for reporting under each sector. It is thus designed to provide one common
reporting mechanism for all the sectors. Form B reporting has since been adopted as a
requirement for accessing cash releases. In this regard, all MDAs are required to specify
the indicators against which they wish LGs to be assessed for purposes of accessing
releases60.Form B is an output of the Output Budgeting Tool (OBT). OBT is yet to be
extended to LLGs.
6.4.1 Findings related to reporting However, the study finds that:
a) LGs continue to be burdened by a multiplicity of reporting requirements. Sectors
have not fully adopted Form B to their reporting needs. All districts that were visited
demonstrated they were required to prepare separate sector specific reports – see
table below. MDAs point to limitation of the information provided through Form B to
meet their reporting needs. Perhaps realizing this, the Form B release guidelines
include a provision (Section 3.1(iii)) allowing sector to request LGs for additional
information Sector ministries require information from LGs to advise on releases,
performance on outputs, and where there are gaps to provide technical support,
mentor and build capacity for better services delivery.
Table 6.4: Average number of reports prepared by a LG in key sectors on annual basis
Sector / Area OBT Sector
specific
Donor
specific
Total
number
of
reports
Education 4 3 - 7
Health 4 4 2 10
Water 4 2 - 6
Works 4 4 2 10
59 Form B was created for performance reporting by LGs while Form A provides performance reporting for Central Government agencies. 60 Refer to Revised Guidelines on Releases to local government – 2009/10, Section 3.1(ii)
Page 67 of 150Final Draft Report
Agriculture / Production 4 3 2 10
b) The directive provided by the President effectively removing the requirement for
using quarterly progress reports (Form Bs) as a condition for releases has weakened
the implementation of Step 2 in the box above.
6.4.2 Recommendations MoFPED should continue to engage sectors ministries to adopt their reporting
requirement to Form B.
OBT and Form B reporting should not be rolled out to LLGs until the current challenges
faced by HLGs have been addressed.
Efforts to support LGs in the use of OBT and Form B should be intensified. Furthermore, LGs
should appreciate that both OBT and Form B are not tools only to be used in order to
get funds from MoFPED but they are also useful in assisting LGs to manage and
monitor their activities in order to achieve the budgeted outputs.
6.5 Accountability mechanisms
Accountability mechanisms or systems are arrangements established by the Government
to ensure financial resources are used in accordance with approvals and for the purpose
intended. Accountability systems involve the exercise of appropriate controls in executing
financial transactions, and proper recording and reporting on the transactions.
Accounting and internal audit roles, as well as oversight functions by Councils, are at the
centre of accountability mechanisms. FDS required that capacity of these functions be
strengthened to minimise fiduciary risk in the management of grants particularly as more
discretion was being granted. Government has since taken steps to strengthen
accountability through the following actions:
In 2005, the Government reviewed structure of local government to provide
sufficient staff in the functions of accounting and internal audit. Internal audit
department have since been established across all HLGs
In 2007, the Government revised and issued the LG financial and accounting
regulations along with a manual to guide LGs on accounting and financial reporting
operations. Training and capacity building have been conducted in regard to these
regulations.
Annual external audits have now been extended to all LGs.
6.5.1 Key Findings related to accountability However, despite the above actions a few challenges remain in the accountability
mechanism as listed below:
The Local Governments Act (Cap243) and the associated Local Government Financial
and Accounting Regulations are robust enough to ensure proper control and
management of funds by LGs. However, compliance with the Act and the
associated regulations remains a big challenge as is evidenced by the internal audit
reports. Most of the LGs visited did not have a properly functioning commitment
control and vote system to ensure that they did not spend beyond their budgets.
Both internal audit and external audits regularly report non-compliance with the Act
and regulations especially in the procurement area where substantial sums of money
are lost annually by LGs.
Page 68 of 150Final Draft Report
The internal audit function should provide assurance that the resources made available
to LGs are used effectively, efficiently and with economy. However, the function is
encumbered by the limited staffing; more than half of the 12 LGs in the study have
only one internal audit staff whereas four (4) staff would be an ideal number. Table
6.5below shows the deficiencies in staffing in the internal audit departments in 12 LGs
visited:
Table 6.5 Staffing gaps in the internal audit departments in LGs
Name of Local
Government
No of Staff in the Internal
Audit Department
Ideal
Number
Staffing Gap
1. Kisoro 2 4 -2
2. Kiruhura 4 4 0
3. Masindi 3 4 -1
4. Oyam 1 4 -3
5. Mpigi 2 4 -2
6. Arua 3 4 -1
7. Moroto 1 4 -3
8. Soroti 2 4 -2
9. Namayingo 3 4 -1
10. Luweero 4 4 0
11. Kalanga
la
2 4 -2
12. Kapchor
wa
3 4 -1
Average
staffing
2-3 staff 4 1-2 staff
Source: Field Data
As can be seen from the table above, only Luweero LG had the complete staffing
requirement in the internal audit department in all the 12 LGs visited. Some LGs like
Moroto and Oyam were relying on only one resource person in the department to
oversee audits in all 12LG departments very quarter of the year. To improve the audit
function, capacity needs to be built for LGs to recruit, retain motivated auditors with
logistical and analytical facilitation to carry out this function as is desired.
Another aspect of the audit function is the weak linkage between LG Accounts
Committees (LGPAC) and the national PAC. In the LGs visited internal auditors
expressed concern about the limited engagement and communication between
internal audit departments, district PAC and LG PAC in Parliament.
The limitations of the internal audit function in LGs are presented in two main ways:
a) Limited Funding: Financing to the internal audit function remains limited and
generally insufficient to facilitate the departments’ activities. Funding for the
functions is drawn from the non-wage unconditional grant or LG local
revenues which have continued to decline in many LGs over the last five years.
Table 6.5 showing the level of funding for the Internal Audit Department as a % of
total expenditure
Page 69 of 150Final Draft Report
Name of
Local
Government
Budgeted
Allocation for
Internal Audit
(2009/10)
Actual
Provision
(2009/10)
Total LG
Actual
Expenditure
(2009/10
Actual Provision
(2009/10) as a
% of Total
expenditure
Kiruhura 29,167,266 28,054,060 11,463,521,872 0.24%
Kisoro 42,585,057 42,585,057 13,290,137,521 0.32%
Moroto 29,924,912 27,351,920 11,603,705,783 0.24%
Masindi 75,626,220 65,878,447 22,255,572,888 0.30%
Kumi 23,000,000 19,951,700 17,971,967,548 0.11%
Budaka 14,788,291 7,152,650 9,128,650,279 0.08%
Amuru 32,938,000 12,388,500 13,103,631,219 0.09%
Average 35,432,821 29,051,762 14,116,741,016 0.2%
Source: District Final Accounts of FY ending June 2010
As can be seen from table 6.5 above the internal audit function receives 0.2% -
a very meagre allocation of the district spending envelope.
b) Most Councillors who are expected to oversee the LG financial management
system and to monitor programmes have difficulties in interpreting reports and
provide technically relevant comments as would have been desired.
6.5.2 Recommendations Implement a program to strengthen the capacity of internal audit function including
improving their staffing levels, providing training and requiring LGs to allocate
sufficient funds to meet their basic operations including for value for money
investigations.
A properly functioning internal audit function goes a long way in ensuring that LG
resources are put to proper use and are used efficiently. The funds that are spent on
internal audit are recovered several times over through the funds that are saved
from misuse and waste. It is therefore imperative that adequate funding is provided
to the internal audit function at LGs.
Implement a program to improve capacity and facilitation of Councils in their oversight
role. In particular, continue to sensitise them on LG financing issues, use simplified
forms to provide information to them on budgets and improve levels of financing to
meet costs for inspection of programmes and projects and other requirements.
Additionally targeted refresher courses should be provided to select weak Councils.
Barazas should be utilized to sensitize communities about their rights and obligations
towards supporting LGs to achieve their mandates and improving services delivery.
Barazas can serve to enlighten communities to desist political interference in LGs
operations.
The Public Finance Bill should be reviewed to incorporate relevant provisions regarding
the management of CG grants to LGs. Particular attention should be paid to the
releases, reporting and accountability mechanisms for CG grants.
All the above recommendations do not require revision of the existing laws. The
recommendations can be accommodated through the update of the current regulations,
procedures and guidelines. The recommendations do not have major funding
implications.
Page 70 of 150Final Draft Report
7 LOCAL REVENUE ENHANCEMENT
7.1 Background
Revenue refers to a sum of payments made to a local government by individuals and
organizations meant to finance service delivery and devolved expenditure functions within
a local government area and within the jurisdiction of a local government as approved by
an Act of Parliament. In Uganda, the authority of Local Governments (LGs) to collect
revenue is granted under Article 191 of the Constitution. The Local Government Act (Cap
243), under the Fifth Schedule as amended, further elaborates the sources from which LGs
may collect these revenues. These include:
i. Local Service Tax (LST);
ii. Local Government Hotel Tax (LGHT);
iii. Taxes on property and land transaction charges;
iv. Rent, Rates and Royalties;
v. Cess on Produce;
vi. Fees on Registration and Licensing; and any other revenue which may be prescribed
by the local government and approved by the minister.
LGs allocate revenue collected from these sources to supplement expenditure functions
listed in the second schedule of the LGA (Cap 243). Local revenues provide the most
discretionary source of financing and therefore Local Revenue Enhancement (LRE) is a
critical component of LG financing. LRE entails a series of mechanisms to expand
opportunities to increase returns from revenue sources of LGs. Local revenue is the source
of financing for recurrent operations of LGs and the sustainability of infrastructure
investments. LGs are mandated under the Constitution and the Local Government Act to
provide management services and other program activities including planning, budgeting
and supervision of services delivery, oversight functions of Councils, operation and
maintenance (O&M) including maintenance of building infrastructure, and other basic
logistical works among others.
Over last decade, the inadequacy of locally generated revenue has remained a major
challenge for LGs. Besides the generally slow growth in revenues, the real resource value
has been declining especially since 2004/05 FY when the Graduated Tax was suspended.
As a result of the decision to suspend the Graduated Tax, the contribution of locally
generated revenues has declined in significance, on average, falling to under 5% of all LG
financing. This has led to a greater dominance of CG transfers for financing to LGs which in
turn has further eroded t the fiscal discretionary power of Local Governments. The
DPSF61points to the increasing inability of LGs to finance operation and maintenance of
their investments in the wake of receding local revenues. The 2005 PEFA report raises similar
issues noting that most grants from CG did not provide the flexibility to allow LGs to
exercise discretion in spending especially on the maintenance of the infrastructure stock.
As a result, the focus has been more on minor repairs leading to a backlog of rehabilitation
and reconstruction which is partly the cause of breakdown of public infrastructure
investments like bridges, boreholes and roads. Studies have also attributed the increase in
CG transfers as a factor contributing to the declining trend in locally generated revenues
by reducing the incentive for LGs to collect taxes62. Efforts to counter this development by
61Decentralisation Policy Strategic Framework (2006), Page 25 6262LGFC, Allocation Principles, Formulae, modalities and flow of CG transfers, 2003, and Fiscal Decentralisation Strategy, the way forward,
2000
Page 71 of 150Final Draft Report
introducing different incentives such as limiting the emoluments and allowances of LG
political leaders to no more than 20% of the total revenues collected63 appears not to
have been effective in arresting the trend. It is against this backdrop that this review
explores measures to enhance locally generated revenues and determine the level of
support needed to pursue improvements in this regard. This chapter analyses options to
enhance local revenues and provides:
i. An assessment of whether current revenue sources are easy to administer;
ii. An assessment of whether the current sources of revenues correspond to local service
delivery and offer benefits including local economic development for residents;
iii. Suggestions for possible new revenue sources and administrative initiatives that
broaden the revenue base and contribute to service delivery, participation and
accountability; and
iv. Make recommendations to enhance equalisation of service delivery between local
governments; and determine whether there is adequate support at the centre to
pursue improvements in local revenue.
7.2 Local Revenue Administration in Uganda
Local revenue administration is one of the challenges that has threatened to undermine
the successes so far made under the policy of decentralisation.
7.2.1 Legal Provisions on Local Revenue Generation
The current legal framework supports LGs to levy and collect local revenues from sources
stipulated in the Fifth Schedule of the LGA (CAP 243) with approval of Parliament under
Article 191 (1) of the Constitution of the Republic of Uganda. The power and authority to
levy and collect fees and taxes are provided under section 80 (3) of the LGA (Cap 243).
LGs collect locally generated or own source revenues with a lot of challenges, which will
be presented later in this chapter.
7.2.2 Local Revenue Administration in Local Governments
A typical revenue structure is predominantly composed of direct taxes on personal
income under LST, wealth tax through property rates, taxes on consumption through user
charges on services rendered, and production through permits, licences, Cess on
agriculture production and business levies. In the recent past, taxes on property and user
levies have become more prominent than direct taxes on personal incomes and wealth.
LGs in Uganda have both limited powers to raise revenues and limited capacity to
manage and collect the taxes that have been authorized64. Almost all revenue instruments
including guidelines for administration are dictated by the centre.65Revenue administration
entails the following process:
i. Policy formulation which considers issues of equity, political acceptability, and revenue
potential;
ii. Identification and registration of all taxpayers under different categories;
iii. Collection which involves the actual methodology of receipts of revenues whether
by using force account or contractors; direct cash receipts or payment direct to
bank accounts of LG;
63Local Government Act (Cap243), first schedule, section 4
64LGFC, The performance and challenges of the current local revenue sources, sept.2010 pgs 11-16, shows severe administrative
problems in all revenue categories.
65Article 152 of The Constitution, all revenues must be approved by Parliament.
Page 72 of 150Final Draft Report
iv. Enforcement, following up on defaulters and ensuring that all those eligible to pay
actually pay either through legal or other action; and
v. Reporting and accountability; and taxpayer sensitisation and publicity which may
involve the holding of workshops, rallies and other forms of tax awareness
campaigns.
7.2.3 Support from the Central Government to support Local Revenue Enhancement
The FDS framework was intended to create an incentive for increased revenue collection
at local government level. However, there is a feeling in some quarters that the increase in
transfers has reduced the incentive and initiative to raise revenues locally, this is based on
the fact that whereas transfers from the centre have grown nominally by over 300% over
the decade, locally raised revenues have had a slower growth rate even in nominal
terms.The Government through the MoLG and LGFC has been implementing a series of
interventions, including capacity building, training support and studies to assist LGs in
revenue administration. These have included:
i. Benchmarking of local revenue enhancement best practices;
ii. A guide for prioritization and selection of revenue enhancement best practices based on
Cost Benefit Analysis;
iii. A guide for estimating the local revenue potential;
iv. Procedures for using Public Private Partnerships more effectively in local revenue
mobilization;
v. A guide to operationalize LST and LHT;
vi. A guide for streamlining royalty fees;
vii. Performance and practices regarding land - based revenues;
viii. A guide for using an incentive framework for local revenue mobilization; and
ix. Other initiatives have included Local Economic Development (LED) through a LED
policy aimed at boosting economic opportunities for business in LGs and
subsequently widening the tax base. The LED five-stage process is presented in Table
7.1:
Table 7.1 LED Process in LGs
Led Strategies How To Implement
District structures as a Forum
of Stakeholders (FoS)
District structures constitute themselves as a Forum of
Stakeholders (FoS) in a manner that ensures that the
strategy is based on sound and representation and
that in this forum businesses, government agencies
and NGO are mobilized to participate;
District conducts an in-
depth Tier Economic
Assessment (RTEA) followed
by a rapid appraisal
immediate, medium term
and long term economic
prospects
Each LG conducts an in-depth Tier Economic
Assessment (RTEA) followed by a rapid appraisal
immediate, medium term and long term economic
prospects for the Tier to plan for a feasible yet phased
public investment. Proposal can then be written for
support from development partners. Such a proposal
can highlight the Tier’s 5-10 year local economic
special features;
Design of a District business
profile displaying ‘business
winners’
Design of a District business profile displaying ‘business
winners’ who may involve farmers, processors,
industrialists, bankers, traders and entrepreneurs who
are exemplary and organize galas, competitions and
awards of ‘Cups of Excellence’.
Page 73 of 150Final Draft Report
Led Strategies How To Implement
District own LED strategy District develops own Local Economic Development
Strategies from a review of SWOT66 of development
opportunities and use this to design a costed social
economic development, and business profile;
Investments are linked within
the national framework
The strategy can be presented for adoption and
implementation either by the District or as a joint
partnership with the Central Government so that local
investments are linked within the national framework
on economic development.
Source: Adapted from the LED Concept note of UNCDF (2006)
It is important to note that even though these initiatives have been put in place LGs have
continued to grapple with revenue administration and the challenge to generate and
collected their own source revenues.
7.3 Analysis of Performance of Local Revenue Sources
Access to adequate revenues for local governments is one of the critical success factors
for the long-term sustainability of investments in service delivery and the administrative
structures needed to achieve the objectives and goals regarding the policy of
decentralization and good governance. Over the last five years, there has been a decline
in revenues collected by LGs especially following the abolishment of the graduated tax in
FY2004/05 which had realized a total collection of Shs.60billion. In an attempt to
compensate for this shortfall, Government introduced two new sources of revenue: the
Local Government Hotel Tax (LGHT) and the Local Services Tax (LST). These two newly
introduced taxes have been unable to fully compensate for the financing gap created by
the abolished GT which was projected to raise over Shs.100billion at 2011 prices and
general incomes. Table 7.2 below shows local revenue trends between 2002/2003 and
2009/2010 and noting the level of GT before abolition
Table 7.2 Trends of Local Revenue Performance by Source (Uganda shillings ‘000,000) Source 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11
Graduated tax 36,526 60,039
Mass taxes(LST,LHT)
10,866 4,429 0 4,823 10,690 12,29467
Prop. Tax 6,788 3,526 26,716 37,817 28,487 24,936 45,598 52,438
Business Licenses 5,805 4,091 12,206 11,779 13,479 9,171 13,369 15,374
User fees and other
revenues 30,987 22,705 50,877 44,630 73,919 79,780 73,145 84,117
Totals 80,107 90,361 100,665 98,655 115,885 118,710 142,802 164,223
Source: LGFC Fiscal Data Bank, 2010
Further analysis indicates that there is no discernible trend in revenue trends. In a majority
of cases there is a wide variation between budgeted and actual revenues over the
period, reflecting severe uncertainty or poor forecasting data or other revenue
administration problems. However significant growth in user fees and charges, has resulted
into an overall increase in nominal revenues from Shs.80.1billion in 2003/2004 to
Shs.118billion in 2008/2009 and Shs.164 billion in 2010/11.
66SWOT refers to Strength, Weaknesses, Opportunities and Threats 67 Only includes collection from one category, salaried personnel.
Page 74 of 150Final Draft Report
7.3.1 Rural and Urban Local Revenue Trends Nationally, Districts contributed 78% of all local revenues in 2008/09 FY with town councils
and municipalities each contributing 11%. The creation of a new district results in the
establishment of at least two self-accounting urban councils where most property tax,
commercial licenses and permits and well established markets represent viable revenue
sources. The predominant tax revenue for rural areas is a mass income tax which has since
been eroded by political action. This phenomenon has resulted into a significant revenue
shift from rural to urban areas as shown by Table 7.3 below.
Table 7.3 Rural – urban revenue trends
Levels of Administration 2008/2009 2009/10 2010/11
Town Councils 9,954,395 21,350,255 27,755,332
Municipalities 10,031,655 25,110,523 32,643,680
Districts 72,892,984 54,201,609 56,911,689
Total 92,879,034 100,662,387 117,310,701
Share of rural LGs (%) 78% 54% 49%
Share for urban councils 22% 46% 51%
The contribution from Districts drastically fell from 78% to 49% while urban councils grew
from 22% in to 51% in 2008/09 and 201/11 respectively. Increasing establishment of new
self-accounting urban councils following creation of new district more specifically will
continually reduce the revenue bases for the rural areas and result into increased
financing gap for services. The figure below further illustrates the revenue shift between
urban and rural local governments.
Fig 1: Changes in Revenue Contributions between 2008/2009 and 2009/2010
Source: consultant analysis of LGFC Data 2012
Rural districts tend to have fewer tax eligible residents and in many cases the levels of
income are lower. This increases tax administrative challenges and weakens revenue
collection potential. By implication, rural districts have a reduced ability to finance the
expected services. Moreover, while their resource base has been reduced their mandates
remain unchanged.
Page 75 of 150Final Draft Report
7.3.2 Source by Source Analysis
a) Graduated Tax
The suspension of graduated tax (GT) after the 2004/05 FY presented the largest decline in
local revenue for LGs. In the year prior to abolition, graduated tax contributed a net total
of Shs. 60billion. With an assumption of an average inflation of 10% per annum and
persistent growth factors, it is estimated by this report’s analysis that by 2011/12 the
graduated tax would have been contributing up to Shs.105billion. LGs were also charging
an additional 10% of graduated tax payable as Education, Development Tax and others.
The additional 10% on graduated tax was used for expenditures such as a grader for
Wakiso, and administrative blocks in Bushenyi, Sironko, and Ntungamo.
To compensate for the losses emanating from the suspension of GT, Government
introduced GT compensation to LGs. The GT compensation initiative has not been more
than Shs.34billion p.a. for all LGs since the date of abolition, resulting into a net annual
shortfall of about Shs.71bn. Seeing that this was not tenable, Government agreed to
introduce the LST and LGHT in 2010/2011, but these sources combined realized only about
Shs.6billion in 2011/12 FY resulting into an apparent shortfall of Shs.97billion68 from this
source alone,. The LST suffers the same challenges as GT and may require a significant
change in public and political attitudes if the tax is to make any contribution to service
delivery.
b) Increase of VAT from 17% to 18% to finance LGs
In 2006, one of the attempts to increase the compensation to LG due to the loss of
revenues from the suspension of GT was to increase VAT from 17% to 18% with an
underlying intension of transferring the complete proceeds from the 1% VAT to LGs. The
MoFPED had projected the yield from this initiative to generate Shs153 billion. If this
amount had been transferred as planned, the financing challenges of LGs would have
been significantly eased, but this did not happen. The decision to not fully address this
funding gap has resulted in wide deficits in the quality and quantity of services being
provided. The decision also resulted in LGs having no funding for monitoring and
supervision.
c) User charges and licenses
User charges and licenses show a significant growth between 2007 and 2010. This may be
an indication of the impact of increased rates for trading permits and licenses rather than
efficiency in revenue management. However, it is evident from economic growth indices
that there is an increase in trading premises and business in most of the urban areas in
Uganda which in itself creates an opportunity for revenue expansion. The recent revision of
rates for trading licenses and permits has made it difficult for some low income LGs to
collect the prescribed licenses and permits. LGs do not have discretion legally to change
these rates to suit local economies and in most cases no collection has been done. The
growth in user fees indicates that there is more willingness to pay revenues that directly
respond to services obtained and to conclude that future reforms should focus heavily in
the area of user fees or direct contribution to service costs.
d) Property Taxes
Property taxes have grown slower than anticipated, at about 45% of the estimated
potential. One of the reasons for this short-fall is the provision for exemptions on residential
68 Potential GT at 2011 was Shs.105 billion plus Shs.6billion development levy less Shs.34 billion compensation.
Page 76 of 150Final Draft Report
property for owner occupied residences. The exemption did not provide a new avenue for
LGs to fund services that were deemed to be funded directly from this revenue source in
these areas. The cost of property valuation and the subsequent post valuation process
costs have been unaffordable by most Municipalities and Town Councils.
7.4 Findings of the Study related to Local Revenue Performance in LGs
The poor performance in local revenue is due to apathy by LG management to take up
the new revenue administration initiatives and also due to the exemptions for LST and
property rates that have reduced the tax base to a significant degree. There has been a
growing attitude of resisting the payment of taxes with increasing dependency on Central
Government to finance local service delivery. This has also been perpetuated by several
uncoordinated political statements. There appears to be limited political interest in the
mobilization of local revenues.. Further, there is no recognition for those who pay LST as
was the case with GT through issuance of a tax ticket. Moreover, there are wide
exemptions under LST especially for commercial farmers. This study found the following key
challenges that have resulted into low revenue administration effectiveness.
a) Low collection effectiveness resulting from administrative capacity gap.
Whereas the LGFC projected a revenue potential of Shs.334 billion69 by the end of 2010/11,
local revenue collections were only Shs.164.223billion reflecting only a 42.5% efficiency
level. Actual average annual revenue growth is 5%. It is therefore not surprising that the
target of shsh334 billion was not attainable without serious action on administrative
reforms. Due to limited financing, LGs lack the capacity in terms of technological know-
how and physical equipment to collect and store credible data on their revenue sources..
Table 7.5 below shows the trend of the past three years and draws a comparison with the
potential and revenue collection effectiveness.
Table 7.5 Revenue collection effectiveness (billions)
Source
2004/05
(last year
of GT)
Actual
2008/09
Actual
2009/10
Actual
2010/11
Estimated
potential
2010/11
Effectivene
ss 2010/11
(%)
Local Service Tax
3.838 9.195 10.574 106.1970171 10%
GT (Net) 60.04 - - - - -
Local hotel Tax
0.984 1.496 1.720 6.459 27%
Property Related
24.936 45.598 52.438 106.718 49%
User Fees
/Charges 33.153 39.924 45.912 72.382 63%
Business Licenses
9.171 13.369 15.374 36.056 43%
Other revenues
46.626 33.222 38.205 106.796 36%
Total
118.709 142.802 164.223 434.603 38%
Source: Consultant’s Data Analysis and Projections, 2012
69 This study projects a minimum 434 billion since new taxes are meant to replace GT. 70Includes estimate for replacement of GT. LGFC estimate excludes the amount. This explains the difference between Shs.334 billion and
this amount.
Page 77 of 150Final Draft Report
Most LGs do not possess a standard and updated taxpayers register and as a result, they
are not able to accurately estimate revenue potential and targets as voiced by a
respondent during the study:
“For Local Revenue, a question that we have not been able to emphatically answer is
“How much should we be able to collect and from whom?” Have we exhausted all the
potential sources? Without answers to these questions, we are always going to fall short”
CFO Entebbe Municipality
In cases where attempts have been made to contract out revenue collection, there are a
limited number of companies with requisite proficiency and capacity in revenue collection
to support revenue collection and administration in LGs. In most cases, contracted
companies are unable to perform as expected on their contracts leaving LGs with a
burden to redeem these contracts. On the other hand LGs do not have appropriate
capacity to determine the respective revenue potential before contact awards, poor
enforcement mechanisms and significant political interference especially during awards of
tenders. These handicaps have tended to impair revenue realisation and accountability.
b) A constraining legal framework which stifles capacity to expand the tax-base
In most LGs that were visited, it was evident that either due to wide ranging exemptions,
susceptibility to political involvement, and the language or provisions of some laws; LGs
have not been able to take opportunity of the changing economic environment to
enhance revenues. For instance, the Act relating to royalties is not clear on rights of LGs.
LGs are usually unaware of the volumes and values of extractions, are not involved in
environmental issues that are likely to increase future expenditures or undermine revenue
initiatives. The Trade Licensing Act 2000 and Statutory Instrument No.54, and guidelines
have tended to base their rates on model urban areas, which has caused difficulties in
implementation of rates in some under privileged rural LGs. There is not sufficient
consultation or discretion for LGs to set suitable rates appropriate to their jurisdiction. An
example for this point is illustrated below:
Most of the trading licenses and permit rates provided for LGs are benchmarked on
Kampala Capital City realities which are not consistent with realities in LGs. We advise that
LGs be given discretion to set levels of payment to widen the tax base at lower rates.
District Finance Officer, Oyam
c) Low revenue base elasticity
Bases of revenues such as LHT, LST, property rates may depend on the rate of economic
development within a given LG and yet the capacity to promote or guide the direction of
economic growth initiatives is outside the domain of LGs. LHT in rural areas depends on
the hotel develop industry which LG may not have immediate ability to attract even in
urban areas since LGs do not generally own land. Furthermore, there is currently a
contracting elasticity of the revenue base with the increasing establishment of new LGs. As
new LGs are created the old LGs lose revenue that goes to areas no-longer under their
jurisdiction. The general impact of the reduction of the tax base or the shifting of the tax
base is illustrated under table 7.6 below. The revenue bases are largely business and
property related revenues based in urban areas. A new district establishes at least one
new self-accounting town council and in many cases the viable county agitates for
separation. Cases in-point, are shown in the table below.
Page 78 of 150Final Draft Report
Table 7.6 Revenue base shift after split
Name of District 2004/2005 2007/2008 2010/11
Mbarara 2,198,372,201 705,496,44872 561,144,805
Kabarole 422,544,81373
335,792,884
Kyenjojo 1,054,303,544
424,911,83874
Source: Study analysis, LGFC data.
d) Low staff capacity in LG local revenue function and contractors
Staff quality and strength remains a challenge for revenue administration in LGs. There are
generally low levels of trained and motivated staff to effectively operate the LG revenue
function. In the LGs visited under the study the LG Chief Finance Officers - have to grapple
with these limitations to manage the day-to-day activities of the revenue collection
process. Low recruitment of parish chiefs and mobilisers are an additional handicap. It
constrains sensitization campaigns to educate the residents on the importance of paying
fees and taxes - a key aspect of revenue mobilization. Furthermore, due to inadequate
logistical support and equipment, LGs are unable to undertake mass sensitization
campaigns. Related to this, some firms which have been contracted by the LGs do not
possess the requisite capacity to collect revenues. Some have been charged with
colluding with taxpayers to reflect taxable stock that is less than they actually possess. Poor
data management makes it difficult to assess the revenue potential of contacted out
sources, which makes enforcement a challenge and increases the risk of abuse.
e) Low investment in revenue enhancement activity
In the majority of LGs and especially the new LGs (created after 2005), their revenue
management sections do not have logistics in terms of basic transport facilities for revenue
administration activities, revenue stationary, data management equipment and
facilitation for staff.
f) Inability of LGs to link local service delivery and collected local revenues
The current low level of service delivery has created a perception among communities
that LGs are not accountable to them which has worsened their attitude to the LGs and
reduced their willingness to pay taxes.
g) Poor business infrastructure constraining collection of fees and licences
In some cases LGs find enforcement of tax payment challenging due to the nature of
infrastructure. For example, some people operate businesses in their homes or private
apartments; most rural markets have no enclosures and this may complicate enforcement
of payment and provided opportunities for evasion.
h) Generally Limited Revenue Potential
The current local government tax structure predominantly provides for direct taxation on
residents, business and wealth. The predominant revenues categories include:
• LST which targets personal incomes especially from employment;
• Property taxes levied on commercial and industrial property and exempts owner
occupied property;
• Production based taxes such as agriculture Cess, trading licenses and professional
business permits; and
• Consumption based taxes such as LHT, market dues and rent.
72 Splint into Kiruhura,Insingoro, Mbarara 73 split into Kyenjojo, Kabarole 74 splint into Kyenjojo and Kamwenge
Page 79 of 150Final Draft Report
The Local Government Service Tax, Commercial and Industrial Property Tax have a
reduced resource base because of levels of income in rural communities. LHT for rural
areas is not a viable source since rural areas generally do not have hotels, so the LHT is
uncollectable; The LST is generally on formal salaried employees who are mainly in the
urban areas. Nearly all property in rural areas is exempt from property tax, allowing for a
few properties in rural growth centers who will usually be reluctant to pay due to
perceived political action and level of economic activity. There is no significant
commercial activity in rural areas and the opportunity for revenues from business permits is
low. This study estimates the revenue potential at about Shs 600 billion by 2015/16. It is
unlikely that this target will be attained in unless appropriate measures and reforms are
undertaken.
Table 7.8 Projections of performance with increased effectiveness( Shs. thousands)
Source
Actual
2010/11
Estimated
potential
2010/11
Impact of
reforms
2013/14
Impact of
reforms
2014/15
Impact of
reforms
2015/16
Local Service Tax 10,573,803 106,190,657 115,860,705 122,204,986 124,425,485
Local hotel Tax 1,719,933 6,458,836 2,579,900 3,353,869 3,689,256
Property Related 52,437,636 106,718,188 78,656,454 94,387,745 103,826,519
User Fees /Charges 45,912,138 72,382,375 68,868,207 82,641,848 90,906,033
Business Licenses 15,374,229 36,056,421 23,061,344 27,673,612 30,440,973
Other revenues 38,205,050 106,796,136 57,307,575 68,769,090 72,207,545
Sub total 164,222,790 334,602,613 246,334,184 295,601,020 325,161,122
New sources
174,509,040 191,959,944 211,155,938
Total 164,222,790 434,602,613 520,843,224 587,560,964 636,317,061
Source: Study Analysis based on LGFC Database 2012
As shown by the table above, the performance in collecting current revenues is on
average below 50% of the potential. Introducing new sources of locally generated
revenues would be creating an increased administrative burden on LGs without an
assurance of increased collection. The current focus should be on improving effectiveness
and efficiency in current sources. However, new financing options should be identified in
the medium term. Since the current estimated service delivery recurrent financing gap is
estimated at Shs.6 billion for each district, (see Chapter 8 section 8.5.2), these taxes will not
be sufficient to close that gap unless the overall collection efficiency improves to about
90%.
a) Low levels of efficiency in Tax Administration
The administrative efficiency of the local governments has been generally weak for many
years. This has resulted in low levels of collection efficiency. Any program to increase LGs’
revenue should focus on the strengthening administration including the provision of
funding for revenue enhancement plans, specific action on politicians and improve
accountability systems. While efforts have been made to document the reasons and to
promote best practice examples, the overall administrative efficiency appears to have
declined further. Some of the reasons for this deterioration are:
Page 80 of 150Final Draft Report
The increase in the number of local governments has resulted in units with low staffing
levels, Soroti District staffing level is at 44%as of the end of 2011, and with staff who
are not well qualified and/or trained;
Limited enforcement of the tax obligations;
Limited use of technology and limited management emphasis on developing and
maintaining effective data bases (manual or computerized) of potential tax payers;
and
A growing resistance to paying taxes because of the decline and low visibility of services
being provided by the government.
a) Little connection between taxes and services
As revenues available to local governments have declined, funds are not available for
proper operations and maintenance of health clinics, roads, drainage systems, etc. The
creation of new local governments has often not considered the filling of the staffing
structures in the short term. For a number of LGs the staffing levels are too low to support
the revenue function resulting in high collection inefficiencies, inadequate funding for
services, and core activities such as support in sensitization, monitoring and supervision of
services to ensure value for money. Consequently, due to the lack of direct improvements
in services associated with local taxes, communities become more unwilling to make
required tax payments as there is a diminished relationship between services and taxes
paid or payable.
b) Limited Downward Accountability
The dominance of transfers from the centre in financing service delivery and emoluments
for the political leadership has meant that accountability is generally upwards to the
centre. With communities receiving most services free, there is little interest in demanding
accountability in quality of service rendered. This low interest in the utilization of funds by
communities has led to low ownership of programmes and therefore less support in tax
payment. Furthermore, limited local revenues make it difficult for LGs to fund processes for
oversight and accountability resulting into the risk of poor service delivery which feeds into
the cycle of low willingness to pay taxes.
c) Lack of awareness regarding tax payers’ responsibilities
Just as there appears to be an increasing trend of local officials looking to the centre to
solve their problems, so too is there a tendency of communities to look to government to
solve theirs. While governments have a clear responsibility to deliver the services
requested by the constituents, no government can meet these needs without the
participation of the communities. Communities need to recognize that they too have
responsibilities to pay their fair share of taxes, to demand honest and accountable local
governments, and to support their governments by co-funding many services through user
fees and/or voluntary contributions.
d) Poor Billing and Collection systems
For the reasons cited above, local government billing and collection efficiency is generally
poor. Some of the specific reasons for this level of inefficiency are:
New and poorly trained staff;
Lack of attention given to developing and maintaining registers for tax payers;
Political activity leading to a worsening of attitudes towards payment of taxes, and
Lack of awareness on the part of the tax payers.
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7.5 Recommendations to enhance the significance of Local Revenues
Local Revenue performance is below estimated potential, whereas the costs and service
needs are growing resulting into critical service gaps. The drop in the level of service
delivery has a negative impact on the level of willingness by residents to pay taxes. The
service deficit impact is further exacerbated by increased rural urban migration which has
resulted into a large class of urban poor.
The gap in financing local service delivery cannot be eliminated solely by increasing
revenues. A more reasonable approach would consist of a combination of increases in
fiscal transfers, increases in own-source revenues, increased community participation in
payment for specified services and a reduction in the cost of the overall local government
system. In implementing the recommendations, the LGs should be able for identify the
quick wins which involve minimal administrative and political costs. The support of the
LGFC will be important in order to actualize these recommendations. The reforms should
be led by LGs rather than through directions from the centre. Revenue enhancement
should have an integrated approach combining:
i. Revenue administration reforms,
ii. Expenditure rationalization (waste minimization) and better accountability; and
iii. Identification of new revenue sources.
This study presents recommendations that can enhance Local Revenue in the short to
medium term under the above themes.
7.5.1 Revenue Administration Reforms
a) Review Legal and regulatory framework
Minimize exemptions on LST and property rates. Rates on owner occupier properties
should not be at more than 5% rateable value. It is proposed by this study that the
Government should set the lowest payable LST rate at Shs.20, 000 (so that those
below that level can be exempted due to a low income status), while retaining the
maximum payable at Shs.100,000. In addition, the cost to collect Shs.5,000 from
salaried persons and others makes the proposition unviable. The guidelines from the
centre should allow more discretion to LGs on exemptions, assessments and
enforcement. Avoid a common solution for all. The tax tribunals should be fully
revamped and be more representative.
Since all residents demand services, all must contribute to the local government
budget. Exemptions on property rates should be reviewed with a view to bring more
tax payers on to the tax registers. Review exemptions and criteria to define
commercial farmers. Reduce tax bands and exempt persons with income below one
million shillings per year and allow LGs to fully be in charge of enumeration and
assessment. In same way the following are proposed to ease exemptions in LST:
i. Restore the issuance of GT Tickets for LST since payers take pride in owning them
as evidence of payment;
ii. Review the markets Act to allow the private sector to develop and operate
markets in partnership with LGs so as to promote local economic development
faster; and
iii. The legal framework regarding access to royalties is not providing enough
safeguards even though the estimated potential from this source is estimated at
Shs.16.5bn per year.
LGs should be permitted to collect revenues from fishing and forestry as was the case
previously by reviewing guidelines for access to royalties in the mining act, the
Page 82 of 150Final Draft Report
forestry act, and the electricity act. For instance, the sharing of specific revenues
should be done systematically so that LGs are not left with difficult to collect taxes.
Lessons can be learned from China which allows the sharing of VAT at 25% to LGs,
natural resource extraction 20% to municipalities holding the resource. Another is
Thailand that shares transfers at least 26% to LGs. For Uganda a sharing mechanism
may be worked between NFA and Fisheries department. Fisheries revenues
constituted a significant portion of local revenues for Island districts and others which
neighbour various lakes.
b) Revenue data base management
Use smart phones to take pictures of all commercial and industrial properties, record the
address of each and attach this information into the taxpayer
identification/registration system.
Introduce Integrated Financial Management Information Systems (IFMIS) in the larger LGs
to utilize the revenue module in the package and develop a data base (registry) of
all taxpayers. The smaller LGs without an IFMIS should be provided and trained on
the use of a standard Excel based taxpayer identification/registration system. This
register should populate the taxpayer registration system with information such as the
names, professions, estimated property value, and payment history. In addition,
there should be a mechanism that utilizes the taxpayer identification/registration
system to transfer taxpayer information into the billing and collection system for the
preparation of the bills. To ensure the success of this process, a specific allocation
should be earmarked to fund this process with project management oversight by the
LGFC and MoLG. Wakiso district is already implementing Revenue software which
provides automatic demand notes and individual account statements
Support development and maintenance of revenue data and systems and other
logistical capacity for overall administration. Table 7.7 below shows a breakdown of
how this support could be distributed in support of revenue administration. .
Table 7.7 Financing initiatives to improve tax administration in LGs
Number Rate Total
LLGs 1,532 10,000,000 15,320,000,000
Districts 111 2,000,000 222,000,000
Municipalities 22 2,000,000 44,000,000
Motorcycles 264 15,000,000 3,960,000,000
Totals
19,546,000,000
As show in Table 7.7 a total one-time seed funding of Shs. 19.5 billion. The fund will be
spent on revenue supervision by both elected and appointed officials, data base up
dates, training revenue staff in assessments, enabling revenue enforcement, and the
computerization of revenue departments.
c) Tie Tax Collections to Service Delivery
The demand for services has increased faster than the rate of revenue growth causing
serious service delivery distortions at all levels. On average, own source revenues at
3% of total budget are insignificant to create a recognizable impact without support
of transfers. In the light of the above, it is imperative for Government to implement
the provision of the Local Government Rating Act, section 37, requiring that a
special account for revenues from rates be on a special account and that at least
Page 83 of 150Final Draft Report
75% of property rate collections be used for service delivery and widely publicize the
implementation of the legal provision.
d) Billing and Collection Efficiency
Make use of standard billing and collection ratios to monitor the efficiency of the
various LGs and monitor their performance during the Annual Performance
Assessment.
Establish the lowest payable LST at Shs. 20,000 and a maximum of Shs. 100,000 and
allow for instalments even from the local communities. Allow LGs discretion and
power to assess LST. GoU should ONLY legislate that persons with earnings below
Shs.one million (1.0m) a year should be exempt from LST. LGs will then identify and
assess according to guidelines especially with respect to assessment values.
e) Strengthen Enforcement
A system of transparent penalties should be imposed on all taxpayers for late payment.
Establish a unit within the District Court for the expeditious processing of delinquent
payments of taxes and duties.
LGs should be given enforcement powers similar to those of URA, for example powers to
attach property of defaulters and bank accounts.
Establish a revenue enforcement section to replace the former local administration
police.
There have been various studies which proposed reforms in LRRs over the last decade
but there appears to be little interest in enhancement of revenues. The action to
directly fund property valuation in urban councils was a one-time event which was
not followed up, resulting in low collection efficiency of property rates. To many
urban councils such as Mpigi Town Council the failure to collect the property rates
was due to lack of funds for follow up on community sensitization and other related
collection costs including enforcement.
f) Identify Best Practice Examples
Under the leadership of LGFC begin to document examples of best practice concerning
tax administration, billing and collection, enforcement, etc. in the local government
system and disseminate them for use of LGs.
Institute a mechanism that rewards the best taxpayers in LGs annually.
g) Sensitization Campaign Regarding Communities Responsibilities – Change Management
Develop a revenue enhancement communication strategy under the leadership of
MoLG and LGFC. Under this strategy, develop bulletins of standard information to
support efforts by the LGs to sensitize their communities regarding the financial
constraints being faced by the LGs and the importance of communities and
individual citizens assuming greater responsibility for local services.
h) Address the challenge of political actions that frustrate revenue collections
Political campaigns have often told people that government will provide all services and
they do not need to pay their taxes. There should be a deliberate effort by CG to
convince politicians to not make any actions which may frustrate collection of local
revenues. The creation of new LGs does not appear to consider the issue of revenue
sustainability and support for minimum service standards by the Central
Government. There is no agreed minimum standard for infrastructure. The lack of a
specific fund to sustain any new district has often resulted into a decline in service
standards in the short and medium term.
Page 84 of 150Final Draft Report
Exemptions on LST and property rates are responsible for a significant portion of the
revenue shortfall.
i) Other general administrative and policy measures
Implement immediately section 12 of Local Government Rating Act which allows for
mass property valuation since costs will be minimal with a big impact on revenues
especially in urban areas.
LGs should begin to collect revenues from fishing and forestry as was the case previously
by reviewing guidelines for access to royalties in the mining act, the forestry act, and
in the electricity act. For instance, sharing of specific revenues should be done
systematically so that LGs are not left with difficult to collect taxes.
Consider establishing a small unit within the District Court for expeditious prosecution of
cases involving risk of delinquency of payment of taxes and fees.
7.5.1 Expenditure Rationalization to avoid waste
a) Set up a Revenue Department
Each local government should establish a revenues department. A revenue matching
grant based on achievements above targets should be provided. Packages of
supply driven training programs on various aspects of LG revenue management
should be developed and made available to the LGs through various local pre-
qualify local training providers. To support this effort, the CG should include provision
in the annual budget for funds to implement this training programme.
b) Support Contracting-out
Explore ways to reduce the overall cost of the local government system. One option to
be studied would be to make systemic use of local private operators for services
such as solid waste collection and transport, the management of landfills/dumps,
road maintenance, street cleaning, etc. By contracting out these services, local
governments would become responsible for the delivery of such services rather than
doing it themselves. Further, making use of local contractors would strengthen the
local business communities by providing them with a steady stream of work while
also enabling local governments to reduce the size and expense of the current
system.
c) Earmark property rates revenues
Ensure that section 37 of the Rating Act requiring that 75% of proceeds are invested in
the area of tax origin is implemented.
7.5.2 Proposed New Revenue Options a) Property Service Tax
Rural LGs should introduce a Property Service Tax [PST] by creating a bye law to assess all
residential properties exempt under the rating Act. The amount should range from
Shs.30,000 to Shs.100,000 per year payable on a quarterly basis. Respective villages
should be allowed a percentage of collection so that they support the collection.
The retained fund should be reflected in village priority programs. This measure
should be subjected to the provisions of the fifth schedule part IV section 13(0) of
Cap 243.
b) Community Contribution towards Service Delivery
Page 85 of 150Final Draft Report
Community contributions towards service delivery, like health centres, water and primary
education should be introduced. LGs should be given discretion to levy a minimal
fee at service points so that the service is owned, improved and to minimize waste in
usage of drugs and of the other facilities. The contributions may range from Shs100 to
1,000. Discretion would be given to LGs to arrange for accountability issues and
management of this arrangement. See section 8 on details of this proposal.
c) Issuing of Municipality Bonds
Introducing municipal bonds will promote more transparency and accountability since
the underlying conditions for qualifying require specified accounting and reporting
standards.
d) Solid Waste Management Tax
A solid waste management tax should be introduced in Municipal and Town Councils to
be assessed by respective LGs. A maximum allowable tax may be determined by
the LGs through a consultative process75.
e) Introduce a Residence Tax
A residence tax on permanent residential houses of Shs.10,000 per year should be
introduced. This source alone would generate about Shs.30bn from the
approximately 3 million houses in the country.
f) Public Private Partnerships and Local Economic Development
Promote more application of Private Public Partnership strategies to raise resource for
service delivery while at same time earning revenues. Development of markets,
vehicle parks, public toilets, health services, education services are attractive for this
strategy. There should be a concerted effort to promote local economic
development (LED) strategies by increasing the level of discretionary funding and
support for revenue generation. LGs would need to be supported to implement
projects under a public private partnerships platform for engagements in markets
development, leisure parks, and car parks to both raise revenues and provide a
service. Local economic development (LED) programs should be appraised and
directly supported by Central Government.
In conclusion, it is recommended by the study that reforms are gradually implemented
starting with the implementation of best practices and administrative reforms followed by
those that require changes in legal frame work and finally new initiatives. Any reforms must
be followed by measures to increase accountability of both revenues collected and
expenditures. There are already many sources of revenues which are under performing
including the new LST and LHT. New sources will put more strain on both the LG
administration and community costs and the likelihood of increased political action. The
proposition for wide ranging new sources is not attractive at the moment.
The general poverty index is still depressed. Any new source of LG revenue is likely to
increase the burden on the poorer elements of the communities and should be avoided
until the overall tax administrative capacity of the LGs improves. New taxes are likely to
have low political acceptability, require new administrative procedures and may be costly
to manage in the initial stages. Consistency in implementation will result in sustainable
revenues; however, the Centre must take the initiative to mentor reforms and LG staff
involved in the process. For best results there must be an approach that combines
administrative reforms, expenditure rationalization, accountability and identification of
75Hoima Municipal Council is charging Shs.5000 per house hold per month, and has been successful after sensitization and consultations.
Page 86 of 150Final Draft Report
new revenue sources. The overall success will depend on level of involvement of local
governments and less dictation from the centre in order to create ownership of the
revenue instruments. Finally, sector ministries should develop service delivery standards
which are cost based, and provide direct funding to districts so that there is equalization in
basic service provision. The equalization grant should respond to service delivery gaps.
.
Page 87 of 150Final Draft Report
8 LOCAL SERVICE DELIVERY GAPS
8.1 Introduction
The decentralization of frontline services, including, among others, delivering basic
education, primary health care, agricultural advisory services and rural infrastructure
(roads, water, etc.) development to local government units is granted by the Constitution
and supported by the Local Governments Act (Cap243). In devolving these services, the
Constitution intended to bring them closer to the people for whom they are intended, to
improve their programming, delivery and reporting. The Constitution also spells out the
framework for financing these service mandates to enable LGs to effectively deliver on
them.
This Chapter presents a synopsis of the status of services delivery and the delivery gaps
and is drawn from field visits undertaken during the study. In 2007/08, MoLG commissioned
a study on “Minimum National Standards and Cost of Service Delivery for Activities under
the Jurisdiction of Local Governments” to determine the cost of delivering services in a LG
based on standards provided by sector ministries. Building on this study, this Chapter
estimates service delivery financings gaps focusing primarily on the management
functions of LGs and service delivery units using health and education as case studies.
This is not an exhaustive costing exercise but one intended to indicate the extent to which
service delivery is underfunded.
8.2 Service Delivery architecture
The mandate for delivering front line services is assigned to local governments -
elaborated under Second Schedule of the LGA (Cap243). In implementing these
mandates, LGs have responsibilities for planning, supervising and accounting for
implementation of these services. In delivering these mandates, LGs use a series of
strategies here below:
Special service delivery units; using special units under the control of the local
government or in collaboration with the private sector or NGOs. This is the case for
schools and health centres;
Units directly under the management of local government; this is the case for
community based services, water delivery, forestry, environment, natural resources,
and agriculture based services among others; and
Outsourcing or contracting; within the existing policy, local governments are
required to contract for road construction and maintenance services. Also, in urban
areas, water supply is undertaken by NWSC.
Many services are also undertaken in collaboration with local communities; water
committees help supervise water points, school management committees work with the
LG to supervise primary education.
The Constitution (Article 191 -193) also lays out an elaborate framework to finance LGs
responsibilities for delivering services. Financing is through a combination of sources but
primarily through raising own revenues and using grants transferred from Central
Government. The level of grants is established through the national annual planning
process. Central Government grants are transferred from the national budget using the
Page 88 of 150Final Draft Report
release system set-up by MoFPED to each LG for purpose of financing services. LGs will
further transfer appropriate portions of the grant to service delivery units – schools, hospitals
or to lower local governments depending on where the service is executed. In recent
years, Central Government began the practise of transferring financing directly to
beneficiaries through a method of direct payment. These transfers are subject to LG
advice. Accounting mechanisms requiring service delivery units to report to LGs and in
turn, LGs to report Central Government on expenditures under these grants, have been
established.
8.3 Major issues for Service delivery units
There is wide spread concern about the state of local services delivery. Poor performance
in services delivery has been attributed to the level of financing and under-staffing76, and
weakness in processes and systems for delivering financing for these services77. These
aspects are treated under separate Chapters. This section focuses on issues and practices
that affect efficiency in management and accounting for services particularly at the level
of service delivery units. These issues are derived from interactions with service units in the
sectors of education (primary schools), health (health centres), water (water offices and
units) and roads (road implementation units). Many of these are generic enough to be
applied to other sectors.
8.3.1 Staffing Staffing emerges as a major issue for service delivery units. It has three elements:
a) Staff structures in most LGs are not filled and have many officials in acting capacity.
This is true particularly in the case of health centres across the districts visited. The
situation is better in primary schools as the “one class one teacher” policy appears to
have responded better to local needs. However, because the head teachers are
considered as part of teaching staff, they are often stressed as they cope with
responsibilities for administration and teaching;
b) New districts take away staff from existing districts which complicates the staffing
issues further. Two years after its creation, Namayingo’s structure is 19% filled; critical
staff for Soroti district was split with Serere after its creation. Many of these staff
commute from Soroti to Serere on a daily basis which limits the time they dedicate to
their work. A similar situation is recorded in the case of Oyam; and
c) Some LGs, particularly rural LGs or those in hard to reach areas, are failing to attract
and retain staff. Even where LGs have offered significant incentives, they have still
not been able to attract staff they desire. Kalangala district, after running 2 adverts
in 2010, they were not able to attract and successful enlist a candidate for the
position of District Health Officer. They offered generous incentives; a top up on the
salary of 50%, a house and a car. The candidate still left after one week. The high
turnover of health staff is also attributable to absence of medical equipment and
facilities which frustrates professional health workers even in seemly well off LGs such
as Wakiso District.
Box 8.1 illustrates some staffing issues found from the field visits. These gaps in staffing are
collaborated by previous assessments and reports including the 7th Joint annual review of
Decentralisation and the Health audit report of 2010.
76 7th Joint Annual review of decentralisation, February 2011, Section 5.2 77 Technical note on the review of LG financing, 2011
Page 89 of 150Final Draft Report
Box 8.1: Illustration of staffing constraints in Local Governments
Bwendero HC III Kalangala78 (main island) has only 6 (including 2 support staff) of 19 staff
in the structure. The district has been unable to attract the right cadre (Senior Clinical
officer, or Clinical officer) to head it. It is currently headed by an Enrolled Nurse. The lack
of critical staff In Soroti at Diana Memorial Health Centre IV has increased average time
an outpatient has to spend at the facility to nearly 8 hours.
8.3.2 Funding for service delivery
a) Effects of funding levels
Financing for local service delivery is low and contributes to the poor service delivery. As
Table 8.1 below indicates, the primary source of funding for service units that were visited is
government transfers. Because districts’ revenues are generally small, they hardly
contribute to the running of these services. Government contributions are low and have
not been adjusted to meet the rising cost of services in the past five years or more. The
second issue concerns the near lack of funding for O&M. Infrastructure that has been
developed for services over the years is not being properly maintained and thus the useful
life of these assets is reduced.
Table 8.1: Funding to selected services and constraints
Grant Allocation Scope to finance Constraint including on O&M
UPE Under 7,000
per child per
annum
reducing to
about
Shs2,000 per
term
35%: instructional / scholastic
materials
35%: co-curricular activities
10%: school management
(10%)
10%: contingency
No special provision for O&M
but could benefit from
contingency
Low funding has led to
reducing expenditure on co-
curricular activities and no
allocations in general to O&M
leading to rapidly degrading
school infrastructure
PHC HC II in Pader
gets an
average of
66,000 per
month. HCIIs
in 14 districts
get below
100,000 per
month
20%: District administration,
management and support
services
80%: Allocations to HCIV, III, II
in ratio 4:2:1 to be used for
administrative expenses,
food supply, medical and
office equipment, O&M,
utilities, cleaning services,
goods and supplies, training
costs, payment of interns,
outreaches, monitoring,
supervision and reporting
and property costs, medical
and office equipment,
O&M, Utilities, cleaning
services,
O&M in the list of items eligible
for funding. In practice, due
to low funding, O&M hardly
gets any allocation leading to
rapid deterioration of the
condition of infrastructure
78Kalangala, and possibly all island districts, have unique constraints making it difficult to attract and retain staff
Page 90 of 150Final Draft Report
Box 8.2 presents examples of experiences identified arising from the impact of low funding
levels on service delivery.
Box 8.2: Illustration of the impact of low funding of service delivery
Due to limitations in funding for co-curricular activities, Wigweng Primary School in Oyam
Town Council has been forced to drop out of sport competitions and music, dance, and
drama activities for which the school was famed for years.
At Ambalal Primary School in Lira classroom blocks constructed under the SFG grant only
10 years ago have completely lost the cement floor, windows and have poor quality
blackboards a factor pointed to shoddy work done by contractors.
Picture 8.1: A maternity ward at Kalangala –Bwendero HC II in a state of disrepair
At Mihembero Health Centre II in Bwijanga Sub-county Masindi district, much as
attendance of patients at OPD has risen from 3,114 in 2008/09 to 4,822 in 2011/12 (an
increment of 55%), the funding allocation has only risen from Shs.2,266,120 to
Shs.2,859,000 (an increment of 26%) over the same period.
No maternity services and/or laboratory services are provided in Kalangala – Bwendero.
Maternity beds were found unattended and breaking down. Mothers have to travel at
least 15 kms to the HCIV in town. The same situation exists on the other islands; Mazinga
HC III does not offer maternity services, accordingly, mothers are often advised to move
to Entebbe at least 3 months prior to birth where they can receive maternity services.
No laboratory services in Diana Memorial HC IV. Prescriptions for many of the diseases
(for example malaria) are based on assumptions. Communities, worried about the stock
outs, are exploiting this gap and often – flocking to the HC when drugs arrive and
pretending to be sick so they build their own stock of drugs which they can use in times
of stock out.
Immunizations are not carried out in accordance with official schedules. In Kalangala,
Page 91 of 150Final Draft Report
immunization is carried out on quarterly basis and not monthly. Most of the financing is
used up in the high travel costs across the islands. For example, at least 200 litres of fuel
is required to move across the 17 islands being served by Mazinga HCII.
Picture 1: Maternity ward in Namayingo
Oli Health Centre IV is a very critical health unit in Arua Municipality but currently it
continues to refer patients to Arua Regional Referral Hospitals due to lack of ARVs. In
Kiruhura District, the largest Health Unit, Kiruhura HCIII has been elevated to HC IV with
works on-going to add an operational theatre to the unit. However, the health unit lacks
electricity and is therefore unable to store blood, maintain electric equipment (like
refrigerators and heaters) and faces serious drug stock outs for essentials like Septrin and
key antibiotics. The health unit is serving about 13,000 patients annually (about 1,021
patients monthly) has only one medical doctor and 3 nursing assistants who are clearly
stretched by the demand for care. Limited allocations at this unit have made it hard for
it to cover essential bed repairs, and maintain most of the infrastructure stock.
b) Contributions by local communities
Community contributions to local services delivery are encumbered by existing policies.
Where community involvement and contributions have been involved in services, local
ownership has been strengthened; investments are more amenable to local solutions and
sustainable. This is especially the case for water services delivery. In nearly all LGs visited,
there was a clear demand to have parents contribute to school feeding. As Box 8.3
indicates, in some LGs, parents are already contributing to the schools to ensure that their
children receive an adequate lunch.
Box 8.3: Parents contribution to school lunch
The lack of a provision for feeding of pupils has impacted negatively on UPE
performance even when a large section of parents are willing but not allowed to pay
an agreeable fee for school lunch. The general failure to provide feeding has tended to
undermine the quality of learning especially in the rural setting. Schools and community
Page 92 of 150Final Draft Report
leaders in nearly all districts, in a number of cases in conjunction with parents,
acknowledged some form of contribution (in kind or financial) asked of parents towards
school meals. In Moroto, parents are encouraged to contribute grain where they
cannot raise Shs.1,000 for each child per term. In Namayingo, parents contribute beans,
maize at an average of 3kgs per child per term. In Kapchorwa, it is 5 kgs per child per
term. In Mpigi and Kalangala, contributions ranged between 6,000 and 10,000 per term.
Contributions are used to purchase maize flour for porridge and firewood among others.
8.3.3 Financial management
The level of efficiency in financial management processes is a major issue. Sectors have
done well, in general, to provide guidelines for the application and reporting on grant
allocations. Disbursement procedures are becoming more transparent and in a number of
LGs, quarterly transfers are placed on notice boards. Most service delivery units visited had
good records for the application and reporting on funding, daily registration of patients,
daily drugs issues against names of patients and appropriate records for drugs in stores. In
addition, authorisation and control levels under education and health are fairly well
established. School management committees review the work plans and provide
authorisation for expenditures. The LG health officers sign off on the transfers to health
centres. Service units return reports to LGs providing accountability. Schools are often
assisted in this process by the sector sub-accountant. Service units however pointed to a
number of issues below:
a) Service units (schools and health centres) do not, in general, have annual plans or
budgets. The practise is to prepare expenditure plans following receipt of cash
transfers. These are then approved by school management committees. This means
they may find it difficult to recover the full cost of delivering services. This is limiting
their ability to manage optimally;
b) Delays in receiving funds which can take up to 6-8 weeks in some instances. This
delay includes time (usually take 2-3 weeks) for LGs take to process transfers to
service units once they receive funds from Central Government;
c) Primary schools would need to have their funding synchronised with the education
cycle. Transfer of UPE capitation should be received at the beginning of the
academic term and aligned to the period of the term. This would reduce the stress
Head teachers suffer as they seek credit to finance school inputs;
d) Heads of service units have limited knowledge of financial management. Although
the sector forms they use in reporting on financial transactions have been helpful in
recording and accounting for their resources, increased understanding of financial
management, including cash management, accounting and reporting would
improve the ability to manage their cash flows; and
e) Internal audit function needs better support. Most units reported that internal audit is
expected to review their transactions every quarter. In practice, internal audit visits
to service units are less frequent. The common practise is to examine transactions
after they are submitted to the LG. Service units do not always receive the reports of
the internal audit.
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8.3.4 Procurement For a number of service delivery units, notably in roads, acquiring inputs (contracts) involve
large sums of money. These units are required to follow the public procurement process to
acquire these inputs. These units identified the lengthy procurement process as a
constraint to delivering services. For contracts exceeding Shs.50million, these units spend a
lot of time following up on their clearance with the Solicitor General as the Law requires. A
related issue is the inability for some of the LGs to attract qualified firms to undertake major
contracts particularly under roads often leading to poor results. In many cases the
contractors have low technical capacity leading to delays in completion of jobs which
sometimes result into money being returned to treasury at the close of the financial year.
8.3.5 Supervision Supervision of local service units is the obligation of the local government administration.
Most service units reported regular (often quarterly) supervision visits. The LGs also
confirmed the schedule of supervision visits however, for service units that are further from
the headquarters, the frequency of these visits is less regular. Limited visits are conducted
by Councillors. The main issues are often the funding to cover cost for these visits. Local
governments often rely on monthly reports by service delivery units that are often further
from the headquarters.
8.4 Gaps in Local Service Delivery Financing
The focus in this section for estimating the gap is based on the non-wage recurrent costs.
Costs for wages are given and are subject to policy. Development costs are financed
through special grants. Non-wage recurrent financing is critical for daily operations of
service delivery and is the focus of estimation below.
The estimation below uses the 2008 MoLG Study - “Study on Minimum National Standards
and Cost of Service Delivery for Activities under the Jurisdiction of Local Governments”
and budget 2011/12 data on LGs allocations and transfers. Data obtained during field
visits is also used to the extent that it is collaborated and reliable. The study is not a
detailed costing but one intended to provide an indication of the extent of the financing
gap in local services delivery. It is the recommendation of this report to commission a
separate study on the cost of service delivery to deduce a much more accurate financing
gap.
8.4.1 Estimated Cost of delivering services at District level In 2008, the Ministry of Local Government commissioned the “Study on Minimum National
Standards and Cost of Service Delivery for Activities under the Jurisdiction of Local
Governments” to provide a basis for determining realistic costs for financing local
government services. This report was the first attempt to compute the development and
recurring costs for a hypothetical (average) district using the minimum service standards as
specified by the each sector. The total wage and non-wage recurrent cost to provide
services for this average district in 2008 were calculated to be about Shs.34.9 billion. Table
8,2 presents the costs for service delivery, non-wage recurrent costs, as presented on page
53 of that report. The table also makes a projection of what those costs would have been
in 2011/12 if they were increased by rate of inflation of 5% per year.
Page 94 of 150Final Draft Report
Table 8.2: Current Cost of Service Delivery for a District Local Government (millions)
Sector (1)
Est. Non-
wage Cost
2007/08
(2)
Projected Non-
wage
2011/12
(3)
Adjustment based
on filled structure
factor =0.58
Education 1,909 2,320 1,346
Health 6,724 8,174 4,741
Works 4,194 5,098 2,957
Water 434 527 306
Production 3,412 4,147 2,405
Community development. 543 659 382
Lands 134 163 94
Administration 2,610 3,173 1,840
Total 19,960 24,260 14,071
In the table above, the figures in column (1) are obtained from the 2007/08 study by MoLG
and projected to 2011/12 – increasing by inflation factor (5%), in Column (2). The figures
under column (3) are obtained by discounting the Column (2) to 58% - the estimated filled
level of the structure. This tables estimates an annual non-wage financing requirement of
14,071billion for an average district
Using this approach, Table 8.3 presents the financing gap derived based on 3 districts:
Soroti, Luweero, and Arua districts.
Table 8.3: Estimated financing gap for districts (including towns) for recurrent non-wage
costs (millions)
Soroti Kisoro Arua
Projected
2011/12
Total non-wage estimated average needs 11,679 14,071 17,166 12,598
Average non-wage transfers* 2,637 3,003 6,321 2,593
Locally raised revenues * 448 157 468 1,055
Total discretionary 3,085 3,160 6,789 3,648
Funding gap 8,594 10,911 10,378 8,950
% Gap 74% 78% 60% 71%
Number of District LGs in similar class 80 22 9 111
National Gap
993,428
- The figures marked “*” are determined by dividing budget provisions, in the case of
transfers, and projections of collections in the case of revenues, by 111, the number of
districts
- The project non-wage figure of 12,598 is obtained as the weighted average of the three
districts taking into account the number of districts in similar class
In the table 8.3 above, adjustments are made to the non-wage financing requirements
based on the 2005 approved structure by district; Kisoro is considered an average district in
terms of its approved structure and so its non-wage requirements are equated to the
figure of 14,071bn in Table 8.2. Soroti district structure is 0.83 of that of Kisoro while Arua
district structure is 1.22 of Kisoro. Non-wage transfers are obtained from 2011/12 budget
Page 95 of 150Final Draft Report
provisions. Locally raised revenues are deduced by projecting actual collections by these
districts based on performance over past five years using data obtained from LGFC. This
model generates a national gap on non-wage recurrent financing (including
management costs) of about USHS. 993.4bn for 111 districts if one considered weighted
averages of gaps for the 3 districts
In the same way, the table below also estimates the costs of running an average
municipal council
Table 8.4: Estimated Cost of Service Delivery for an average Municipal Local Government
(millions)
Sector / Department
Estimated
2011/12
Wage
costs
Estimated
2011/12
Non-wage
costs
Estimated 2011/12
costs for Service
Units outside LG
mains administration
Total
Estimates
2011/12
Administration 378.6 1,388.2 - 1,767
Special Urban services - 375.4 - 375
Production 27.3 146.2 116.6 290
Health - 38.6 998.0 1,037
Education 57.6 180.3 1,640.1 1,878
Works 111.3 307.5 549.5 968
Water and sanitation - 25.2 50.3 76
Natural Resources - - - -
Community based
services 45.7 138.0 24.2 208
Divisions 238.0 643.7 - 882
TOTAL 858.5 3,243.0 3,378.6 7,480.2
Based on the table 8.4 above, the financing gap for 22 municipal councils is estimated to
be 58.9billion in 2011/12 as shown in the table below.
Table 8.5: Estimated financing gap for Municipal Councils for recurrent costs (millions)
Amount (millions)
Total Required (incl. urban services) 7,480.17
- o/w wage costs 2,525.94
- o/w non-wage operating costs 4,954.22
Average non-wage transfers - 2011/12 National Budget 3,865
Average projected LRR collections 939
TOTAL Revenues 4,804
Gap 2,676
% GAP 36%
Number of Municipalities 22
National Funding Gap 58,881
Page 96 of 150Final Draft Report
Table 8.6 below provides estimated gap in financing salaries covering all services for both
urban and rural LGs. To the extent possible, these figures have been deduced based on
approved structure or staff numbers and using salary rates for 2011/12. The financing gap
on wages is estimated at Shs252bn
Table 8.6: Estimated financing gap for Salaries based on 2011/12 financing levels(billions)
(1)
Amount
Required
(2)
Amount
Provided
(3)
Gap
(4)
% Gap
Education (Primary) 639.04 517.13 121.91 19%
Health workers 168.77 141.60 27.18 16%
Others (incl. LG admin, Secondary /
Tertiary Education) 391.44 288.03 103.41 26%
TOTAL 1,199.25 946.75 252.50 21%
Column (1) in the table above, the amount required for
- primary teachers is based on the ceiling of 139,699 teachers79 and assumption of
balanced mix between U5 and U6salary scales
- health workers in health centres is determined based on approved salary
structures for health centres II, III and IV and the number of health units as
provided by Ministry of Health
- salaries for LG administration are based on structure of an average district. These
also include salaries for District Executive Committees, and Speakers of Councils
- in the absence of data on ceilings for both secondary and tertiary, the budgetary
provisions for 2011/12 are assumed.
Column (2) in the table above, the amount provided is derived from the budgetary
provisions for 2011/12.
Assuming the derivations in tables 8.3, 8.5 and 8.6 above, the total recurrent financing gap
for local government services, including wage and non-wage costs, is estimated at about
Shs. 1,285,921 billions
8.4.2 Financing gap for management services
Management services are at the centre of delivering services. Management services are
defined to include operations of the LG for administration, planning, budgeting,
supervision, monitoring, reporting, accounting and auditing. Proper implementation of
these mandates will strengthen the delivery of services. In general, management services
are financed out of discretionary funding under the LG non-wage unconditional grant and
local revenue. Table 8.7 presents the cost of management services and projects and
generates an estimate for the financing gap.
79 Figure provide by MoFPED
Page 97 of 150Final Draft Report
Table 8.7: Estimated management cost financing gap for Soroti, Luweero, Arua districts for
recurrent non-wage (figures in thousands)
(1)
Average
HLG
('000)
(2)
Soroti
District
('000)
(3)
Luweero
District
('000)
(4)
Arua
District
('000)
(5)
Average of
selected
districts
('000)
Estimates for non-wage costs
Councils costs (allowances) 974,620 974,620 974,620 974,620 974,620
Operational Costs 1,579,420 1,639,701 2,623,537 3,001,800 2,421,679
O&M - Equipment 257,901 193,776 266,489 341,848 267,371
Maintenance of Buildings 68,540 91,705 157,168 218,215 155,696
Total required 2,880,481 2,899,802 4,021,814 4,536,483 3,819,366
Estimates for discretionary
receipts
Own Source Revenue 764,009 559,090 338,627 1,192,171 696,629
Un-conditional Grant and
others 696,680 603,191 920,250 1,656,438 1,059,960
TOTAL discretional resource 1,460,689 1,162,281 1,258,877 2,848,609 1,756,589
Estimated gap -1,419,792 -1,737,521 -2,762,937 -1,687,874 -2,062,777
Gap in % -49% -60% -69% -37% -54%
Table 8.7 estimates the cost of management services by combining costs related to
Council operations (including allowances and supervision costs), costs for general
administration including supervision, inspection and monitoring of service delivery by the
LG, and the cost for maintaining equipment and building infrastructure. The financing gap
is then determined by comparing the sum of these costs and the allocations under un-
conditional grants (non-wage), conditional grants allocation under other management
function, and projected levels of local revenues to be collected by the LG in the financial
year 2011/12. Using the average gap of the three districts (Soroti, Luwero and Arua) of 54%,
the national financing gap would be about 230bn for all 111 districts.
In the table above:
Management Services include costs for LG councils, administration and operations
of the departments. including inspection and supervisions;
Council costs are computed based on standard rates for allowances and assume
6 meetings of 2 days each in year;
Operational costs computed at 7/6 of wage for central administration and 6/4 of
wage for sector departments. These ratios are less that the standard ideal rates of
7/3;
Operational and maintenance of equipment computed at 9% of equipment value
provided in 2008 MoLG costing report;
Building maintenance computed at 2% of value of building infrastructure in the
2008 MoLG costing report;
Own source revenue is average estimate - 2011/12 for "average HLG";
UCG is the sum of UCG-nonwage and other non-wage CGs for administration
functions; PAF monitoring, IFMIS costs, DCS operations, board and commissions,
school inspection;
Page 98 of 150Final Draft Report
Projections for the 3 districts: Soroti (Column 2), Luwero (Column 3), Arua (Column
4), are obtained by applying the ratios of their approved structures to the average
district to the figures in column (1)
Estimates of discretionary receipts are sums of OSR and UCG from Form B of the 3
districts.
Table 8.5 applies this logic to all 111 districts using 2011/12 as the base year
Table 8.8: Projection of financing gap for management services for 111 districts (millions)
(1)
2011/12
(2)
2012/13
PROJECTED
Growth
factor
(3)
2013/14
(4)
2014/15
(5)
2015/16
(6)
2015/16
Receipts – all districts
Own Source Revenue 120,490 150,612 25% 188,265 235,331 294,164 367,705
Un-conditional Grant 70,491 75,587 10% 83,145 91,460 100,606 110,666
TOTAL discretional
resource 190,980 226,198
271,410 326,791 394,770 478,371
Estimated requirement 423,950 445,147 5% 467,404 490,775 515,313 541,079
Estimated gap
-
232,969 -218,949 -195,994 -163,984 -120,544 -62,708
% gap -55% -49% -42% -33% -23% -12%
In the table, figures for unconditional grant for 2011/12 and 2012/13 are obtained from
official allocations (approved / draft estimates). Own source revenues for the same years
are obtained by projections from actual collections for 2009/10. Requirements are
deduced by multiplying the gap in table 8.8(column 5) by number of districts. Columns 3,4,
5 and 6 are obtained by applying respective items to the growth factors. As provided in
the table, it is possible to reduce the financing gap significantly if efforts are put in to
improve local revenue collections – using the measures in Chapter 7, and if Government
accepts to increase the allocation under UCG by 10% in real terms over the medium term.
Further reduction in the financing gap can be achieved through efficiency measures
8.4.3 Gap in financing for selected services
This section presents estimated the financing gaps for UPE and health centres. The section
is unable to cover all services due to limitation in the data.
a) Financing gap for UPE schools
The estimation presented in Table 8.9below uses an average school based on MoES
database and compared this derivation with 3 selected schools with data obtained from
the field.
Table 8.9 estimates the costs of recurrent activities, excluding salaries and instructional
materials provided by Central Government, based on an average school. Important
elements in the computation are administrative and management costs, scholastic
materials including co-curricular activities, water and sanitation and costs for maintenance
of buildings and furniture. The financing gap is determined for 3 schools; Kichinjaji P.S, Soroti
MC, Nadunget PS in Moroto, and Bessania PS in Mpigi, based on data parameters
Page 99 of 150Final Draft Report
collected during field visits. The financing gap is generated by comparing the rate per
child derived as a result of the costing for each school and the present rate of 7, 000/=
used by Government. From this exercise, the financing gap ranges from 37% to 50% across
the schools. Assuming an average cost of Shs. 13,021, the funding gap becomes Shs.6, 021.
For a student population of 10,779,933 (based on the MoES census of 2011), the funding
gap aggregates to Shs.65billion under UPE.
Table 8.9: Estimated financing gap running selected schools
Salary rate
or estimated cost
for building
AVERAGE
SCHOOL
Kichinjaji
P.S.
Soroti MC
Nadunget
PS
Moroto
Bessania PS
Mpigi
Parameter used in
estimation
Enrolment 485 1,508 366 299
Teachers - U5 4,997,616 5 3 - 3
Teachers - U6 3,795,093 5 1 2 2
U7 - Upper 3,744,000
16
3
U7 3,264,000
6 18
Classrooms 14,875,000 9 20 8 7
Furniture - Classrooms 62,000 162 309 88 126.00
Furniture - Teachers /
Admin 100,000 11 22 10 9
Latrine Stances 1,299,048 12 14 10 10
Staff Houses 22,500,000 7 11 2 -
Administration block 14,875,000 2 2 2 2
Costing (UShs) Wage
43,963,545 98,275,941 66,342,186 33,815,034
Recurrent Costs
Admin. / Operations (% of
wage) 2% 879,271 1,965,519 1,326,844 676,301
Scholastic Materials 7,000 3,395,000 10,556,000 2,562,000 2,093,000
Water and Sanitation 500 242,500 754,000 183,000 149,500
Furniture Maintenance 2% 221,957 427,160 129,120 174,240
Building Maintenance 1% 1,959,732 2,954,367 877,405 427,405
6,698,460 16,657,046 5,078,369 3,520,445
Rate per child (Ushs) 13,811 11,046 13,875 11,774
Current Annual allocation
per child 7,000 7,000 7,000 7,000
GAP
-6,811 -4,046 -6,875 -4,774
% GAP -49% -37% -50% -41%
In the table above:
Parameters for average schools are derived from MoES database on school inventory
based on 2011 census;
Parameters for selected schools obtained direct from the school through - field work;
Teachers’ salaries are derived from the 2011/12 public service salary schedule;
Page 100 of 150Final Draft Report
Rates used for building infrastructure (classrooms, administration offices, latrines) are
standard rates used by MoES and provided in the 2008 cost study;
Non-wage administration costs, including maintenance of equipment) computed at 2%
of wage costs – in line with rates used in the 2008 MoLG Service cost study;
Scholastic materials - including co-curricular, are estimated at 7,000 per student per year;
Contribution to water and sanitation of Shs.500 is an estimate;
Maintenance of furniture computed at 2% of cost of furniture; and
Maintenance of buildings estimated at 1% of cost of buildings from the 2008 costing
study.
b) Financing gap for Health centres
Table 8.10 presents the computation for the service gap across health centres using
generic data provided by MoH (health centres inventory – 2011), and the 2008 costing
study and approved structures for health centres based on the 2005 restructuring report.
Table 8.10estimates the financing for each type of health centre; Health Centre II, Health
Centre III, Health Centre IV, by comparing the costs for operations, O&M and building
maintenance against the level of financing provided under PHC – non-wage grant. The
assumption is that all financing for health centres is provided through the PHC non-wage
grant. The computation excludes medicines as these are supplied directly by Central
Government. Gaps in financing range between 30% and 79% across the health centres
with health centre IVs experiencing the largest gaps. This computation places the total –
national financing gap at Shs.11.8bn.
Table 8.10: Estimated financing gap for Health Centres (figures in Shs. thousands)
Rate HC II HCIII HCIV
Annual wage estimate
22,821 72,784 219,557
Assume filled to 65% 65% 14,834 47,310 142,712
Building Infrastructures costing
146,537 507,671 1,074,251
Equipment Infrastructure costing
9,199 40,899 148,667
Estimated Costs (excl. medicines)
Operations (excl. medicines) 9% 1,335 4,258 12,844
Building infrastructure 1% 1,465 5,077 10,743
O&M equipment 2% 184 818 2,973
TOTAL
2,984 10,153 26,560
Estimated Gap
Current PHC average allocation
2,085 4,170 8,341
Gap
-899 -5,982 -18,219
% Gap -30% -59% -69%
Total Number of HCs
2,197 1,096 177
National GAP excl. drugs
-1,975,419 -6,556,392 -2,131,623
In the table above:
Annual estimates of wages are based on the structure for each HC using 2011/12 salary
rates;
The wage cost is discounted to 65% based on target to fill the structure in the MoH
Sector Policy statement;
Costing for building and equipment based on 07/08 report on "Cost of delivering services;
Operational costs are computed at 9% of wage;
Page 101 of 150Final Draft Report
Maintenance of building infrastructure computed at 1% of estimated investment costs as
provided in the 2007/08 cost report;
Maintenance of equipment computed at 2% of estimated investment costs as provided
in the 2007/08 cost report; and
The numbers from health units obtained from MoH database.
8.5 Proposals for financing the gap
The table below proposes ways in which the gap on non-wage recurrent costs may be
closed. Based on projections on the financing needs, current planned transfers under the
MTEF and local revenues growth, the financing gap is likely to reduce marginally in the
medium term from 68% down to 61%. The study proposals to introduce community
contributions but these may only reduce the gap further by about 5%. It is the proposal
that government significantly increases financing to LGs to further reduce this gap. Other
measures, including improving in expenditure control and management, are likely to
contribute significantly to reducing this gap further.
Table 8.11: Proposals for closing the gap on non-wage recurrent
Projections (figures in Shs.millions)
2011/12 2012/13 2013/14 2014/15 2015/16
Estimated needs
District non-wage (incl. towns) 1,398,366 1,538,202 1,692,023 1,861,225 2,047,347
Municipal non-wage 108,993 119,892 131,881 145,070 159,577
TOTAL projected needs 1,507,359 1,658,095 1,823,904 2,006,294 2,206,924
Projected funding
CG Non- wage transfers 338,660 379,140 435,730 484,980 604,980
Local Revenues 137,738 165,286 223,135 234,292 246,007
Total current projected financing 476,398 544,426 658,865 719,272 850,987
Gap in financing
Estimated Gap 1,030,961 1,113,669 1,165,039 1,287,022 1,355,937
% Gap 68% 67% 64% 64% 61%
Funding the Gap
Community Contribution 84,323 84,716 85,117 86,819 87,236
Gap after local initiatives 946,638 1,028,953 1,079,922 1,200,203 1,268,701
% gap 63% 62% 59% 60% 57%
In the table above, figures for estimated needs under 2011/12 are derived from the
computations under section 8.4.1. Non-wage figures projected for the years 2012/13 are
projections by 10% increase from the previous year. Central Government transfers are
derived from the MTEF while projections of local revenues are derived by including
increments from improvements resulting from measures proposed in this study.
8.6 Recommendations
Page 102 of 150Final Draft Report
The recommendations provided below are directed to address multiple issues identified
above to the extent possible:
The Government will need to give priority to resolving the low staffing with particularly
emphasis on administration and management functions of LGs and in service
delivery units. Health centres will require staffing levels to be significantly improved in
order to improve the impact on service delivery. In addition, Government will need to
review the responsibilities for deployment of health staff to mitigate the impact for
those LGs that are unable to attract the right numbers of staff;
As Government increases focus on service delivery, priority should be given to
strengthening supervision and monitoring function of LGs. The LG discretionary
financing (unconditional grant / local revenues) should be increased to enable LGs
to facilitate local Councils in their oversight function and for management to
undertake regular supervision and inspections of service delivery units timely;
LGFC to assist LGs to develop and operationalize an O&M policy for all assets and
investments in services.
Capacity for financial management in service delivery units should be strengthened.
Heads of service units should improve their knowledge and use of financial
management principles including in the use of cash management tools. In addition,
more facilitation should be provided to LG internal audit functions to provide the
required check on the management of financial transactions by service delivery
units;
Government should improve the financing of LG service delivery. The actions include:
o Require that service grants from Central Government are in line with the cost to
provide the service and adjusted annually for inflation;
o Require that unconditional grants are provided to improve resources available
for LG supervisions, monitoring, and internal audit functions;
o Enable LGs to enhance their own source revenues by implementing the
recommendations identified in Chapter 7 so that LG can contribute increasingly
and meaningfully to the financing of their functions; and
o Promote more participation and contributions from communities as discussed
above.
Government should review the policy on community contributions. Communities should
make contributions in kind, volunteer or make some payments towards delivery of
services; parents should be encouraged to pay for school feeding and contribute to
building school infrastructure. Communities should be organized to make
contributions to the maintenance of water points, etc. This will encourage greater
local ownership and sustainability of local services. It will also develop local
participation which should in turn encourage demand for accountability – a key
principle in the decentralisation policy. Tables 8.12 and 8.13 below illustrate the
possible impact of community contributions in health and education (UPE). Both
cases show that community contributions, at sustainably low levels, can move very
close to closing the financing gaps in the two sectors. Without introducing community
contributions, the Government will need to provide resources to meet the financing
gaps
Page 103 of 150Final Draft Report
Table 8.12: Illustration of covering the Financing gap in health using Community
Contributions
HC 11 HC111 HC 1V
Present recurrent Cost
needs 2,984 10,153 26,560
Available funds 2,085 4,170 8,341
Annual cost Gap 899 5,983 18,219
Funding % 30% 59% 69%
No. Units nationally 2,197 1,096 117
National Gap 1,975,103 6,557,368 2,131,623
Funding the Gap
Number of Daily patients 162 115 80
Community Contribution
(Rate payable per visit to
Health unit) 500 1000 1500
Days in a year 300 300 300
Revenue 24,300,000 34,500,000 36,000,000 94,800,000
National contribution
53,387,100,0
00
37,812,000,00
0
4,212,000,
000
95,411,100,0
00
Table 8.12: Illustration of covering the Financing gap in Education (UPE) using
Community Contributions
Kichinjaji
P.S.
Soroti M.C.
Nadunget
PS
Moroto DLG
Bessania
PS
Mpigi TC Average
Average cost needs 16,657,046 5,078,369 3,520,445 8,418,620
Cost per child 11,046 13,875 11,774 12,232
Capitation transfer per child 7,000 7,000 7,000 7,000
Annual capitation Gap 4,046 6,875 4,774 5,232
Gap % 37% 50% 41% 43%
Number of children enrolled 10,780
Projected average 6,021
National average gap 64,911,259
Funding the Gap @ 6000 64,679,598
Community contribution per child at only 2000 shillings per term 6,000
Total National parent
contribution p.a. 64,680,000
Implementing this may require a review of some policies or existing laws. For instance,
the Education Act will need to make it mandatory for parents to pay towards meals
and contribute to maintenance of school infrastructure.
Page 104 of 150Final Draft Report
9 PROPOSED INTER-GOVERNMENTAL FISCAL DECENTRALIZATION
ARCHITECTURE
9.1 Introduction
The Intergovernmental Fiscal Decentralisation Architecture (FDA) refers to the design of a
country’s fiscal operations in a framework of its decentralisation policy. The FDA is vital to
the delivery of local government financing to and for maximising its value towards local
service delivery.
In discussing the FDA, this study follows the definition used by LGFC80 describing the FDA as
a function of five parameters namely: (i) revenue assignment, (ii) expenditure functions, (iii)
the inter-governmental fiscal transfer system (IGFT), (iv) the borrowing capacity of a local
government, and (v) the institutions for implementing fiscal decentralisation. The IGFT
outlines fiscal operations between the central and local governments and between the
layers of local governments. For the purpose of this study, it is defined to consist of 2 sub-
systems; the intergovernmental fiscal allocation (FAS), and the intergovernmental transfer
system (FTS). The FAS describes the allocation of funds in the national budget between the
central and local governments and between higher and lower levels of local governments
also commonly referred to as the vertical allocation, and the allocation of financing
between local governments at the same level, the horizontal allocation. On the other
hand, the FTS refers to mechanisms and rules for transferring financing which includes rules
for budgeting, disbursements, accounting and reporting.
This Chapter reviews Uganda’s FDAs. The main objective in reviewing the FDA is to
strengthen its support to the objectives of decentralisation in Uganda. The review is
expected to enhance management of fiscal operational in order to improve the
efficiency of local government financing and its support for local services delivery. The FDA
review draws on the findings and conclusions of earlier Chapters. The earlier sections of
this chapter are dedicated to the challenges facing the FDA and identifying issues to be
considered for revision. The latter part makes proposals for the revised FDA in the context
of 6 pillars. The chapter ends with identification of implications of the revised FDA on the
policy, legal and institutional framework
This study has a fundamental change regarding the mechanisms used for
intergovernmental fiscal transfers in Uganda. This study has recommended that
Government debates further the possibility of changing from a grants system to a revenue
sharing mechanism as the fiscal transfer system between central and local governments.
This recommendation has major implications for the fiscal decentralisation architecture in
Uganda. Since this debate is yet to take place, this study has limited its revisions of the FDA
to the grant system. The FDA will be reformulated to suit the final decision at an
appropriate time.
The FDA is distinct from the FDS. The FDA is broader covering all aspects of the fiscal
decentralisation framework. On the other hand, the FDS is a strategy focussing on
streamlining the grant transfer mechanisms in a form that would enhance local
80 See Technical Note on the Review of Local Government financing in Uganda, Adam Babale / Vincent Maher, March 2011
Page 105 of 150Final Draft Report
participation and autonomy. Transfer mechanisms are only one part of the FDA. Whilst, as
discussed under Chapter 3, the reforms under the FDS have not been implemented in full,
its key principles remain relevant to the FDA. The revisions proposed in this Chapter do, to
the extent possible, integrate these key principles into the FDA.
9.2 Uganda’s Policy of Decentralisation and its challenges
Decentralisation is hinged on three pillars; political, administrative and financial (also
referred to as fiscal) decentralisation81. The political level involves democratic leadership,
participation at all levels, decision making and power relations between the centre and
local governments. The administrative decentralisation focuses on legislative powers and
administrative management including human resource management, while fiscal
decentralisation involves planning, budgeting and budget implementation including
accountability, and supervision. The success of the decentralisation relationship is heavily
dependent on effective synchronisation of the political and technical elements and
functions. Decentralisation takes three forms, de-concentration, delegation and
devolution82. These are explained in the box below:
Box 9.1 Common typology of “Decentralisation
De-concentration is often considered to be the weakest form of decentralisation and
is used most frequently in unitary states-- redistributes decision making authority and
financial and management responsibilities among different levels of the central
government. It can merely shift responsibilities from central government officials in the
capital city to those working in regions, provinces or districts, or it can create strong
field administration or local administrative capacity under the supervision of central
government ministries.
Delegation is a more extensive form of decentralisation. Through delegation central
governments transfer responsibility for decision-making and administration of public
functions to semi-autonomous organizations not wholly controlled by the central
government, but ultimately accountable to it. Governments delegate responsibilities
when they create public enterprises or corporations, housing authorities,
transportation authorities, special service districts, semi-autonomous school districts,
regional development corporations, or special project implementation units. Usually
these organizations have a great deal of discretion in decision making. They may be
exempt from constraints on regular civil service personnel and may be able to charge
users directly for services.
Devolution a third type of decentralisation is devolution. When governments devolve
functions, they transfer authority for decision-making, finance, and management to
quasi-autonomous units of local government with corporate status while the centre
retains policy making and oversight functions. Devolution is a much more expansive
transfer of power to lower governments.. It gives beneficiaries significant say in
decision making and local priority setting, in addition to enabling LGs to hold local
officials accountable.
81 Refer to Decentralization Policy Strategic Framework, section 3.3 82 See Decentralisation Policy Strategic framework, Section 3.1
Page 106 of 150Final Draft Report
Uganda’s stated policy choice in decentralisation is by “devolution83”; devolving
responsibilities and powers over their execution to “the point where they are actually
delivered and thereby improve accountability and effectiveness84”. It widely
acknowledged that decentralisation on the dimensions of political and administrative has
progressed well towards the concept of devolution. Fiscal decentralisation still lags behind.
The challenges identified in the preceding chapters attest to this view. In recent past,
various developments have extended this challenge to the concept of devolution. Some
of these developments listed here below:
The re-centralisation of the appointment and deployment of the Chief Administrative
Officers, Town Clerks and their deputies who are also the accounting officers of the
district and municipal councils. Whilst necessary to give greater independence to
CAOs and Town Clerks in their decisions, the re-centralization strengthens control of
central government over these officials and has the potential to weaken local
accountability;
The remuneration of the key LG political positions by the Central Government including;
District Chair, District Vice Chair, the District Executive Committee, and the Speaker.
While policy provides more predictability in emoluments of these key officials, it has
the potential to weaken their accountability to local communities and commitment to
increasing levels of local revenues;
Changes to local revenue sources by Central Government leading to reductions in
locally raised revenues weakens the concept of discretion in decision making and
local autonomy; and
Increases in the number of districts reduce the scope and viability of local revenues
sources and reduced ability to attract staff in posts.
These developments are contrary to the strict definition85 of the devolution principle.
Prudence may have necessitated the adoption of some of the practises above. In such
circumstances, the variation in practice need not be construed as policy change. Lessons
may be taken from other countries in comparable situations which face similar challenges
as in the example below from Tanzania
Box 9.2: Extract from Tanzania’s Fiscal Arrangements, Luc Noiset and Mark Rider
The central government plays a significant role in personnel for delivery of services. Thus
despite the seemingly genuine desire to decentralize along the legal language of
decentralisation, a system has emerged in Tanzania that is de facto less decentralised
than might appear by simply reading the enabling law. This observation does not
necessarily imply that the government is at fault or that some alternative approaches
might be better suited to achieving the ultimate goal of fiscal decentralization in
Tanzania. It might instead be the case that obstacles to decentralisation in Tanzania
arising from fundamental obstacles of the country’s social economic conditions and its
political economy preclude following the prescriptions of the normative theory of fiscal
decentralisation in countries like Tanzania, at least at this stage of their development.
83 The Constitution, Article 176(2a) 84Decentralisation policy Strategic Framework, MoLG, 2006 85 The Decentralisation Policy Strategic Framework (Section 3.1) gives the definition of devolution to refer to assignment of corporate status
and autonomy to LGs in decision making, planning, administration, financial and development management
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Some changes in practices need not be construed to mean a reversal of Government’s
policy, but rather a practical adjustment to reflect realities and/or the pace of
decentralization.
9.3 The FDA and Challenges in its implementation
Based on the definition in section 9.1 above, the FDA is treated to have components as
depicted in the diagram below:
Key aspects of Uganda’s FDA are defined in the Constitution of the Republic of Uganda
(1995) and supported by the Local Governments Act (Cap243). This includes the functional
responsibilities of local governments, their powers for raising revenues (1995 Constitution
article 191 and LGA (section 80)) and the mechanisms for sharing such revenues. Local
governments borrowing powers are stated under Section 84 of the Local Governments Act
(Cap243), and the rules for borrowing are further elaborated in the fifth schedule (section
25) of the Act. The Public Finance and Accountability Act (2003)8687 is a key piece of
legislation on procedures of financial management and expenditure control. Local
Government finance and accounting regulations (2007) form an integral part of the legal
and regulatory framework.
The Government has made tremendous progress in implementing elements of the FDA
over time. However, as widely identified in the preceding chapters, a range of gaps
remain. Many practices have not often adhered to the provisions of the law or the
operational rules that have been set out. Gaps have emerged in legislation or guidelines
that have limited implementation. In other cases, new policies or practices have emerged
86 Discussion here refer to the Public Finance bill yet to be approved by Parliament, Once approved, it will replace the PFAA (2003) and the Budget Act (2002) 87 It is expected that the Public Finance Bill will be enacted to replace the Public finance and Accountability Act(2003) and the Budget Act (2001)
Page 108 of 150Final Draft Report
that do not conform to the policy of decentralisation, for example ones that have had the
effect of re-centralisation, which are weakening the FDA.
These key challenges are discussed further below.
9.3.1 Coordination and Management Coordination and management is core to operations of the FDA. This includes
coordinating and supervising all stakeholders implementing various aspects of the FDA,
ensuring appropriate reporting and monitoring are undertaken to meet the objectives of
the FDA.
The review of the FDS under Chapter 3, has identified the issues below which are attributed
to a weak coordination and management function of the FDA;
The legal framework was not sufficiently clear regarding the supervision of the FDA.
Government intended to correct this short-coming when it adopted the FDS. There
were also efforts to address this issue under the FDS by using the LGBC. However the
lack of a strong overarching coordinating institution88 to oversee the FDA
implementation has been cited as a major issues (Chapter 3);
LGBC and LGROC have been limited in coordinating the FDS reforms as a result of a
weak leadership role; and
The legal framework is not sufficiently clear regarding the responsibilities for
coordinating and overseeing the implementation the FDA.
9.3.2 Legal framework Most financial legislation is not adequate in its support to local government financing and
the LG financial management system. These concerns, also listed below, have been
discussed in chapters 4 and 5:
While the Budget Act (2001) establishes the budget calendar, it does not provide a
guide on its integration with the local government budget cycle. This is crucial for
further streamlining and protecting the FDA;and
The Public Finance and Accountability Act (2003) is not clear on the link between the
national and local government financial management systems. The Public Finance Bill
(PFB), which is expected to replace the PFAA and the budget act, in its current form,
carries on these limitations. It states clearly that it does not apply to local
governments89. There are several elements relating to the LG financial management
system which require clarification by the PFB or its supplementary law. These include:
clarifying the relation between the PFB and LG financial legislation including setting
general principles for control and management of public funds, the integration of
the national and LG budget cycles, setting general principles for LG reporting and
accounting, and setting general principles for control, management, accounting and
reporting on public funds by service delivery units – schools, health centres, etc.
9.3.3 Revenue assignments Implementing legal provisions on LRRs have largely been adhered to but with numerous
challenges (also refer to Chapter 7) especially regarding enforcement such as:
The revenues assigned to LGs are of a direct tax nature on largely low income cadres
which makes it susceptible to political resistance;
Changes in revenue rates and category may be made by the centre without any
consultation with the LGs or providing any compensation in the event of lost
revenues;
88Diagnostic of Intergovernmental Fiscal System – Urban Authorities in Uganda, Page 20 89 Section 3
Page 109 of 150Final Draft Report
Controls in relation to revising revenue assignments are inadequate; and
Revisions to revenue sources, such as the abolishment of graduated tax in 2004/05,
and suspension of specific fees and permits on transporters and markets have had
severe negative impact on local government financing and consequent service
delivery (see Chapter 7 and 8).
9.3.4 Expenditure Assignments The Local Governments Act specifies the sharing of expenditure assignments within the
decentralised Government structure. However, findings of the study below (also see
chapter 4) revealed continuous challenges to implementing this sharing framework:
A number of functions, for example trade development services, land administration,
(see Chapter 4) lack sufficient clarity in the separation of responsibilities between
central and local governments;
A number of functions remain unfunded or for which requisite funds were not
transferred to local governments over the years of implementing decentralisation;
The human resource management function is faced with a number of challenges
(see Chapter 4). The operations of the Districts Service Commissions are hampered by
the lack of appropriate competences and funding, and some LGs are failing to
attract / retain key professional staff. In addition, the position of Chief Administrative
Officer has been re-centralised; and
There are a range of functions in which local government are experiencing difficulty
in executing because of inter-jurisdictional overlaps or where the size of LGs do not
offer the relevant economies of scale to sustain the services. Field studies identified
such functions to include: human resource deployment / management for
professional cadres, service commissions, maintenance of road units, secondary,
special and technical education, physical planning and trade development services.
These functions could be better executed at a larger regional level.
9.3.5 Intergovernmental fiscal transfer (IGFT) The 1995 Constitution lays out provisions to support elements of the IGFT system; the vertical
allocation between the central and local governments is facilitated by a set of 3 grants
(article 193) - unconditional, conditional and equalisation grants. The Constitution offers
guidance on the determination of the size of each grant but this is not sufficient. Rules for
horizontal sharing among HLGs are sector based in the case of conditional grants. A
sharing system is used between layers of local government; the framework for sharing LRRs
is provided under Section 85 of the LGA while Central Government provides allocation
guidelines for those grants shared between HLG and LLG. Over time, Government has
established regulations and guidelines to support the implementation of the IGFT. These
have laid out in the rules and procedures of operations governing transfers from Central
Government including the accounting and reporting mechanisms.
There has been considerable progress in key aspects of the IGFT, notably in the
management of the releases of grants, accounting and reporting. Here below, are the
practices that have differed with some aspects of the IGFT
Conditional grants have continued to be the preferred mechanism for allocating funds
from the national budget to local government functions;
The number of conditional grants has continued to grow - the FDS reforms relating to
limiting the number of conditional grants, including the RTB/DTB transfer modalities
were not implemented;
Gaps still exist in aligning the conditional grant allocation formulae with the factors of
population, area and poverty (see Chapter 4);
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Limited or no provisions are made for operations and maintenance costs under the
grants. This is limiting the ability of LGs to sustain existing service delivery infrastructure;
Some ministries continue to administer projects and programs related to local
government services outside the grant system;
Insufficient provisions are provided under the grants. Some grants have tended to be too
thinly spread. In addition, there has been marginal growth in value of the grants. As
a result, as the number of local government units and their populations have
continued to grow, more financing is channelled to administration and the impact
of the grant has continued to fall;
Central Government continues to delay the issuance of final IPFs impacting the
execution of the local government annual planning and budget process; and
There are gaps in defining conditional and equalisation grants (the Constitution, article
193) leaving open their interpretation and affecting their implementation (see
Chapter 4).
9.3.6 Institutional assignments Institutional responsibilities for the implementing the FDA are elaborated in part in LGA.
Other responsibilities are also assumed in the mandates ministries and agencies. See table
below for institutional mandates relevant to the FDA
Table 9.1: Institutional Roles under FDA
Agency FDA responsibilities
The Parliament of
Uganda
Appropriates grant allocations, approves changes to the
legal framework regarding the FDA, revenue and expenditure
assignments, and creation or removal of districts /
municipalities. Through the PAC oversight for accountability
and value for money in service delivery is exercised.
Cabinet Provides policy guidance to service mandates of LGs and
approve grant ceilings
Ministry of Finance,
Planning and Economic
Development
Facilitates the transfer of financing from the national budget
to local governments based on criteria set under each grant
Ministry of Local
Government
Inspection of the implementation of grants but also mentoring
and capacity building of local governments
National Planning
Authority
Defines the planning framework and coordinates the
development of the National Development plan its linkage
with LGs plans
Local Government
Finance Commission
Advises central government on matters of local government
financing including local revenues and grant allocations
Sector Ministries Sets sector service standards, define grants including their
allocation formulae and guidelines, and supervises / monitors
service delivery
Auditor General Provides external audit services to local governments and
issues reports of the Parliament and local councils
Local Government
Councils
Approves and supervises local government development
plans and budgets
LG PAC Reviews LG audits and provides an oversight function over LG
financial management
The responsibility for supervising the local government system and accordingly the FDA is
vested in the Minister for Local Governments who is supported in this role by the LGFC
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coordinates closely with the MoFPED. In the context of implementing the FDS, two
committees were established:
LG Budget Committee (LGBC) - chaired by LGFC, was set up primarily as a coordinating
committee to promote fairness in conditional grants and their smooth
implementation. It facilitates a dialogue with sector ministries on the conditions
associated with grants, the allocation formulae and adequacy of guidelines. The
LGBC also facilitates linkages between the local government and national budget
processes by among other things reviewing and advising on issues arising from LG
BFPs for inclusion on the national BFP; and
Local Government Releases and Operations Committee (LGROC) - was intended to
facilitate the integration of the FDS reforms into the operations of releases. It works
with sectors to coordinate releases to local government and reporting and
accountability. It is chaired by MoFPED.
The following observations of the study represent key institutional challenges to the
implementation of the IGFT:
The political commitment that was experienced in the early years has slowed down and
with it, further progress in implementing fiscal decentralisation.
The role of sectors has increasingly become key in implementing the IGFT; in defining
grants including levels of transfers and in supervising the implementation. Various
studies have pointed to this role as a hindrance to the proper implementation of the
IGFT. The absence of a strong overarching and coordinating authority to get sectors
to actively implement the FDS or the decentralisation policy in whole has been well
documented90 as a critical factor;
The advisory function of LGFC91 has been challenged severally by other institutions the
consequence of which has been less control over local government financing. An
example of this can be seen in the number and size of grants or the revisions to the
local revenue sources, and their impact on services by local governments;
Whilst the LGBC and the LGROC were instituted to strengthen coordination in
implementing the FDS, there have been gaps in ensuring compliance with the FDS
measures and accordingly less success in implementing key FDS reforms. As a result,
for example, conditional grants have continued to grow in number;
Development Partners (DPs) have emerged as key institutional players. DPs make
contributions to local government financing largely through the national budget
either as budget support or project aid.
o Project aid poses a challenge as it may introduce rules of operation outside
the FDA.
o The dialogue between the Government and DPs providing budget support is
through the Joint Budget Support Framework (JBSF). Successive sessions of
Joint Assessment Framework (JAF) under the JBSF are capturing and will
continue to capture key performance benchmarks on local government
financing
9.4 Proposals for the revised FDA
The revised FDA will aim to strengthen fiscal decentralization by protecting and promoting
local government financing, enhancing orderliness and control in the management of
90 Diagnostics of Inter-government fiscal transfer system – urban authorities in Uganda, (Jasper Steffen and Emmanuel Ssewankambo2011) 91 The Constitution, 194(4)
Page 112 of 150Final Draft Report
intergovernmental fiscal relations, strengthening LG capacity for supervision / monitoring of
service delivery and increasing discretion in local decision making. In its design, the FDA
will build on past progress in implementing fiscal decentralisation including working and
enhancing the existing legal, policy and institutional framework. Key principles to guide the
design and implementation of the FDA should be transparency, accountability,
predictability, adequacy, equity, and incentives to raise more revenues and avoid waste.
9.4.1 Pillar 1: Legal and Policy framework The Constitution and the Local governments Act shall be the key pieces of legislation to
guide the FDA. Other supportive legislation will include the public finance law and
financial regulations issued from time to time. The goal in enhancing the FDA will be to
strengthen control in ensuring the FDA goals are met. . Amendments to be made to the
legal framework are listed in section 9.4.
9.4.2 Pillar 2: Leadership and Coordination Roles for leadership and management of the FDA will be assigned as follows:
The Prime Minister shall have oversight responsibilities over the FDA monitoring progress in
its implementation resolving policy issues affecting its use;
The Minister of Finance shall be the champion of the FDA. The Minister shall ensure that
rules, procedures and standards for the FDA are adhered to. The Minister shall
provide the technical interpretation of the FDA and shall be the responsible party
effecting amendments to the FDA; and
The Minister of Local Government shall be the lead advocate on local government
affairs. The Minister shall lead amendments to the LGA and the regulations.
9.4.3 Pillar 3: Expenditure assignments Expenditure assignments for local governments are functions that are decentralised to
local councils under the Second schedule of the LGA (Cap243). Levels of LGs will share
functions as provided in the same schedule. However, under section 32, the LGA (Cap243)
provides rules for delegation92 of a Central Government function to a local government.
Reverse delegation is also provided for under Section 31(1).
The goal of the FDA under this pillar will be to improve the efficiency and effectiveness of
local governments in providing services by improving clarity and strengthening control
over the allocations of expenditure assignments and their financing. Central Government
will support the LGs to provide further clarity over expenditures where overlaps exist and to
update the legal framework accordingly. HLGs will continuously review and clarify the
sharing of responsibilities with LLGs. Central Government will institute policies that will deter
interferences or changes in expenditure assignments that are likely to have adverse
impacts on the capacity of LGs to deliver services.
The following provisions will apply to the expenditure assignments:
Expenditure assignments will be outlined in LGA (second schedule);
Expenditure assignments to LGs will be sufficiently clear allowing LGs to exercise their
roles fully;
Amendments to the sharing of functions between central and local government would
be subject to approval by Parliament;
All mandates, resulting from expenditure assignments, to LGs shall be fully financed;
92 Delegation in this study is interpreted to mean requesting one entity to administer or execute another entity’s function on it behalf
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Sharing of staff assignments between central and LGs, and between layers of LGs will be
such as to facilitate deployment, attraction and retention to support services
delivery; and
Changes to LG expenditure assignments shall be supported by measures that will protect
LGs capacity to deliver services.
9.4.4 Pillar 3: Revenue sources (incl. revenues assignments, grants, other sources,
borrowing) Local governments shall receive revenues from the following sources: (i) locally raised
revenues (also see 9.3.5 below), (ii) transfers from Central Government (also see 9.3.6), (iii)
contributions by development partners or/and NGOs, and (iv) contributions by
communities.
The goal of the FDA will be to increase the level of financing and its impact on service
delivery through better efficiency and control over revenues sources and their yields,
improving the discretionary element of these sources, limiting external interferences and
interventions that may disrupt collections, and ensuring growth of revenues over time. LGs,
with support from Central Government, shall strengthen capacities for assessing and
forecasting of revenue yields, improve administrative efficiency of revenue sources,
undertake campaigns to increase compliance in the case of LRRs. Central Government
shall put in place policies that will deter undue interference in the LG revenue sources and
their administration.
LRRs are sources of revenues assigned to LGs under the Local Government’s Act. LGs will
have full control over these sources including setting rates, within guidelines provided by
Central Government, and administering them including:
Central Government shall ensure that no taxes or other sources of local revenue shall
be abolished except if replacement sources have been identified and are proven to
provide same or between yields of revenues. In all cases, LGs shall be fully
compensated for any reduction in their financing resulting from this action;
Central Government shall support LGs to develop a structure of LRRs sources which
shall be simple, easy to administer and, to the extent possible, with no exemptions;
and
LGs shall be provided with flexibility to determine rates for taxes and fees in all
revenue sources.
Grants from Central Government will be extended using mechanisms put in place under
the Constitution. The manner of determining, distributing and transferring these grants shall
be as provided in the section 9.5.5 below. Central Government shall take steps to increase
the discretionary financing within the grant system. No financing from Central Government
to local government programmes shall be designed and administered outside the grant
system as provided below.
Contributions by development partners or/and NGOs shall be limited to grants and may
be in kind or in financial terms. To the extent possible, they shall make these contributions
known to LGs in time for their planning cycle. To the extent possible, these contributions
shall be directed to priority activities identified in the LG development plan.
All sources of revenues shall be captured in the a single local government framework for
planning, budgeting, accounting and reporting and shall be subject to external audit by
the Auditor General
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9.4.5 Pillar 4: Inter-governmental fiscal relations / transfers The intergovernmental fiscal transfer system will consist of the grants system together with
rules and practices governing transfersbetween central and local governments, and the
sharing system between levels of local governments. The goal of the FDA under this pillar
will be to enhance equity and transparency in sharing of the grants across LGs, and to
improve efficiency in transfer mechanisms between central and local governments. The
FDA will also aim to improve alignment of grants with expenditure assignments and
decentralised programmes.
a) Grants
The framework of grants will continue to consist of the unconditional, conditional and
equalisation but with specific rules ensuring that they are adequate and that they meet
the purpose for which they are intended. These grants are discussed further below.
i. Unconditional grant
Unconditional grant (UCG) shall be a sum of money provided to LGs as contribution
towards its management services including towards the cost for administration, and to the
operational functions of planning, O&M, monitoring, and supervision of local government
programs, auditing and the oversight function of Councils. The rules below shall apply to
the UCG;
The wage component of the unconditional grant shall cover the full cost of the staff
structure for each local government excluding service units such as schools, health
centres.
The grant will continue to be disbursed without conditions. However, to provide more
confidence about its contribution to improving service delivery, LGs will show its
allocation in the BFP and in the budget. In addition, each quarter, each LG shall
furnish to CG results of implementing the grant against a set of targets, for example,
the number of council meetings taken place in the quarter, the number of inspection
report submitted to Central Government, etc. Performance on these indicators should
be a pre-condition for release of sector based grants;
On annual basis, Cabinet shall ensure that the allocation to the grant meets the criteria
set out in the seventh schedule of the Constitution.
ii. Conditional grant
The Government is to review the structure of conditional grants limiting their number and
making them more flexible in responding to LGs’ needs as discussed in Chapter 4, and to
include the revisions in the FDA.
Eligibility of conditional grants shall be guided by the following criteria:
Service sectors eligible for conditional grants are limited to education, health, water,
agriculture / production, roads, and environment;
Salary conditional grants will be limited to sector service delivery units outside of the main
LG administration such as schools, and health centres;
Each sector shall have no more than 3 conditional grants; wage, non-wage recurrent,
and development; and
Annual growth in sector grants shall be in line with price increases.
When creating a new conditional grant, the following rules shall be followed:
- Cabinet shall be responsible for creating new grants;
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- The proposed new grant shall fit within the structure of grants as described in the FDA
and as discussed above and is distinct in the services for which it is intended;
- The cost for delivering services for which the grant is intended have been determined,
including overheads for supervisions and O&M in the medium term as the case may
be;
- MoFPED has confirmed that this level of additional financing will be met and has been
integrated in the medium term expenditure framework (MTEF);
- The appropriate allocation formulae for the grant has been developed, discussed with
local governments and the LGFC and takes into account the key parameters
relating to disparities in LGs for delivering the intended services; and
- The allocation formulae are output / outcome based allowing for flexibility in allocations
by LGs.
On annual basis, Cabinet shall ensure that the allocation to each grant meets the criteria
set out for growth of unconditional Grant in the seventh schedule of the Constitution.
iii. Equalisation grant
Eligibility for the grant shall be tied to low revenue potential and the existence of unique
conditions that constrain delivering services within a LG, for example, difficulties in
operations associated with island LGs or unique terrain in high altitude or mountain LGs.
b) Rules governing the grant system;
The Government will develop a set of rules to be applied to the grant system. These will
include but not limited to the following:
Each grant is to have a transparent and equitable allocation formula developed
through a transparent process of consultation with LGs and LGFC;
In determining the allocation formula, the sector ministry will include provision for O&M
where the grant requires the use of or is investing in infrastructure. For example UPE
capitation needs to include O&M;
The level of each grant should be sufficient to meet the cost of financing the services for
which it is intended. Where this criteria is not met, the sector will furnish a plan, agreed
to with MoFPED and LGFC, providing a commitment to address the gap over the
medium term;
Each grant shall be accompanied by guidelines that will conform with FDA requirements,
for its implementation both for central agencies and local governments; and
The amount under each grant shall be adjusted annually to compensate for price
changes and for changes in the scope functions.
c) Financing other than grants
All financing related to local governments must fit within the criteria of the grant system.
Sectors using other channels of transfers will integrate their funds into the grant system with
clarification of how the roles for administration of financing will be shared. In this regard,
rules governing external assistance related to local government functions, as provided in
the aid management manual, will need to be amended to conform to the rules in (b)
above and section 9.3.7.below.
9.4.6 Pillar 5: Rules of operations The following set of rules should be integrated in the FDA for the purpose of streamlining
transfer mechanisms during the annual planning and budget cycle:
Every year, at the beginning of the annual budget planning process, the LGFC, in
conjunction with Ministry of Finance, and Ministry of Local Government shall prepare a
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policy briefing on local government finance and service delivery to be provided to
Cabinet at the time of considering spending priorities;
Cabinet will approve policy targets for local government service delivery and make
aggregate allocations for LG grants which will provide the basis for sectoral grant
allocations to meet these targets;
Each year, MoFPED will provide to Parliament a plan for local government financing
and targets for service delivery together with the national medium term expenditure
plans as required by the law93;
At the beginning of the annual planning cycle, sectors will advise MoFPED of the
indicative planning figures (IPFs) under each grant. In turn MoFPED will be the single
institution to advise LGs of the IPFs;
Every year, the MoFPED shall issue IPFs to LGs in time (not later than the period set in
the budget calendar) to enable them commence to prepare their annual spending
plans;
All transfers to local government shall be made by MoFPED using the rules for release
(release guidelines) issued by the Ministry except as provided in c) below;
The following transfers shall be exempted from the rules in (b) above. These will be
transfers related to specific goods and services for which central procurement and
delivery is found to increase efficiency. MoFPED will issue detailed guidelines for
expenditure items that may be treated under this category. In all cases, the agency
responsible for the transfer shall advise MoFPED of the allocation formula used, the
annual ceiling and actual spending levels per LG on quarterly basis. Examples of these
transfers:
- Procurement and delivery of medical and veterinary drugs which are divested to
National Medical Stores;
- Procurement of and delivering schools’ instruction materials and text books under
the Ministry of Education; and
- Procurement of national examinations (UNEB fees) for primary and secondary
schools under Ministry of Education.
Transfers for salaries and other staff emoluments shall be made by MoFPED
directly to staff against the payroll that will be verified and approved by the LG;
Transfers to service delivery units that have separate management outside
the central LG administration such as schools, hospitals and health centres, will also be
made directly to the bank account of those units. However, (i) LGs will be responsible
for reviewing, verifying and clearing reports from these units before forwarding
requisitions for funds to Central Government (MoFPED), and (ii) reporting
arrangements for all such units must be through the respective LG including their
annual budgets, quarterly reports, and annual accounts and audits;
LGs shall apply each grant and report on its usage in accordance with the
rules provided in the guidelines;
93 Budget Act 2001, Section 4
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Balances that remain unspent on transfers to local governments at the end of
the financial shall be retained and not returned to the consolidated fund at the end
of a financial year. However, LGs shall re-vote these balances in the budgets for the
new financial year and shall furnish a new plan to sector ministries on the planned
expenditures under these funds;
On an annual basis, an assessment of the performance of LG system is to be
conducted covering local government financing and service delivery and based on
an agreed set of policy targets as part of policy monitoring. This process will be led by
LGFC and will be integrated into the annual LG assessment. It will require to have
targets set for the entire LG system and each LG individually.
Every third year, a full blown assessment of the operations of fiscal
decentralisation and support to LG financing is to be undertaken. This is intended to
check the policy direction on fiscal decentralisation and to inform key reform actions
for the next three years. This assessment shall be used to review and re-negotiate
targets for financing (grants) and service delivery. This is to be overseen by the Minister
of Finance in conjunction with the Minister of Local Government and the
Chairman/LGFC
9.4.7 Pillar 6: Specific Institutional roles Institutions should be assigned roles clarifying their contributions to the FDA. Specific
responsibilities relating to FDA include the following:
a) Parliament
Parliament will provide oversight over the implementation of the FDA and protection
of LG financing. Parliament will be provided with appropriate data by the executive
(MoFPED/LGFC) to effectively undertake this role. In particular, Parliament will:
- Inspect annual and medium term budgetary allocations to ensure consistency
with the implementation of the Constitutional provisions on grant allocations; and
- Receive and review annual performance reports on LG financing and service
delivery and provide recommendations to the Executive to address gaps.
b) Cabinet
Cabinet will oversee the implementation of the FDA ensuring that all MDAs are in
compliance with the FDA requirements. In particular, Cabinet will:
- Approve and issue the revised FDA. Future amendments to the FDA will similarly
be approved and issued by Cabinet;
- Issue rules and guidelines regarding the implementation of the FDA;
- Coordinate policy discussions in relation to LG service delivery;
- Approve the creation of new grants and issue guidelines for allocations formulae
for all grants;
- Set policy targets for local service delivery and make aggregate allocations to
the grants for these services;
- Monitor allocations to grants ensuring that their growth is consistent with
Constitutional provisions; and
- Ensure that decisions with implications on LG financing, including the creation of
new districts / LGs or the abolishment of local revenue sources do not negatively
impact financing of any LGs.
c) Office of the Prime Minister (OPM)
Page 118 of 150Final Draft Report
OPMwill provide oversight over the implementation of the FDA within guidelines set
by Cabinet. OPM will ensure compliance by MDAs and will resolve any policy,
institutional and operational conflict in the implementation of the FDA provisions.
d) The Minister of Finance
The Minister shall be the champion and political head of the FDA, and the Minister
shall supervise its implementation. The Minister will coordinate the implementation of
the FDA reform program within the policy and political structures of Government
including within Cabinet and Parliament and shall periodically issue any
supplementary guidelines to MDAs on the FDA.
e) The Minister of Local Government
The Minister has the political mandate to implement the policy of decentralisation.
The Minister shall update and upgrade all LG legislation to align it with the revised
FDA. Coordinating closely with counterparts in MoFPED and MPS, the Minister will be
key to implementing institutional and financial reforms identified to the FDA.
f) Local Government Finance Commissioner (LGFC)
LGFCshall be the custodian of the FDA, monitoring its implementation, and ensuring
that all changes to the FDA uphold the integrity of the local government financing
system. The LGFC is to work with the Ministers of Local Government, and of Finance
and other appropriate authorities (political and technical institutions) to monitor the
implementation of the Constitutional provisions of the grants and rules established
under the FDA.
In view of the FDA responsibilities, the Chairperson of the Commission shall engage at
policy levels with Cabinet, in support of the Minister for Local Government and the
Minister for Finance on issues of local government financing. The Chairman shall also
o prepare technical and policy notes on local government financing and service
delivery and provide support to the Minister of Finance and Minister of Local
Government in Cabinet meetings at the time of reviewing the annual budget
strategy, and with the Parliamentary Committee on Local Government during
budget discussions;
o advise Cabinet, Minister of Finance and Minister of Local Government on the
level of compliance with the implementation of the FDA; and
o provide periodic monitoring reports on the implementation of the FDA to the
OPM, MoFPED and MoLG.
g) The Ministry of Finance, Planning and Economic Development (MoFPED)
The Ministry has a mandate for resource mobilisation, for facilitating budget
preparation and releases to local governments. Through the LGROC, the Ministry
shall lead the implementation of reforms of the operational rules in section 9.2.7. The
MoFPED shall establish procedures and guidelines for the implementation of rules for
transfers as amended under the FDA. MoFPED shall ensure the integration of
operational rules into existing financial regulations and systems for financial
management. The Ministry shall also ensure that non-budget support donor funding
related to local government mandates is disbursed and reported on using modalities
consistent with the FDA
Page 119 of 150Final Draft Report
h) Sectors Ministries:
Sector ministries shall remain the centres for policy formulation and monitoring.
Consistent with the legal provisions, they will continue to set sector service standards
and supervise / monitor service delivery. Sectors, following consultations with LGFC
and MoFPED, will advise Cabinet on the need to create new grants ensuring such
proposals are aligned to the FDA.
i) LG Budget Committee (LGBC)
LGBC, under the chair of the LGFC, should integrate the FDA procedural changes
related to releases and reporting that are proposed into the budget cycle. The LGBC
will report to the Minister of Finance.
j) Local Government Releases and Operations Committee (LGROC)
LGROC will support the LGFC to coordinate the implementation to the grant system
that will have been agreed to.
k) The Public Sector Management Working Group (PSMWG)
PSMWGwill integrate, monitor and coordinate FDA reforms in the sector work plan.
l) Development Partners (DPs)
The Joint Assessment Framework (JAF) will be used to monitor FDA reform
implementation for the purpose of dialogue with the DPs on local government
financing. The Government should also encourage DPs other than budget support
donors, to channel their support through budget support modalities to the extent
possible or to grant more flexibility in rules and conditions associated with project aid
to increase its alignment to the FDA.
9.5 Implications to policy, legal and institutional framework
Changes to the FDA will have implications for the policy, legal and institutional framework.
Changes that are proposed at this point are:
a) The Minister of Local Government:
The Ministershall, by statutory instrument, establish regulations providing rules and
procedures for reviewing the local government structure, expenditure or revenue
assignments and identifying key responsibilities for MoLG, LGFC, MoFPED in execution
of the technical processes supporting these tasks. The regulation should also guide
Cabinet in their roles in clearing such changes.
The Minister shall provide the leadership to amend the LGA (Cap243) to clarify the
definition for the equalization grant, including providing a requirement for assessing it
impact; and to provide for annual growth of provisions of both conditional and
equalisation grants in line with the unconditional grant formula provided in the
seventh schedule of the Constitution.
b) The MoFPED
MoFPEDshall introduce changes to the Budget Act (2001) and the Public Finance
and Accountability Act (2003) to integrate the LG annual planning and budgeting
cycle and to require budget guidelines to be issued to LGs not later than the date
established in the budget calendar, and to present to Parliament a medium term
Page 120 of 150Final Draft Report
plan for local government service delivery financing along with the national medium
term expenditure plan in April.
The Ministry shall lead a review of local government financing, including Central
Government grants and revenues generated by LGs, to provide sufficient funding to
cover all decentralised responsibilities assigned under the FDA. This will eliminate the
“unfunded” mandates.
MoFPED shall lead the review and expand the LG planning and budget guidelines to
clarify the recording of donor flows and community contributions during planning
and budgeting
c) The Ministry of Education
The Ministryshall review the Education Act and issue regulations to strengthen the
reporting arrangements between the head teachers for secondary schools and the
LG administration. This should ensure the LG increase their supervision and oversight
over secondary schools.
d) The Ministry of Local Government (MoLG)
The Ministry shall introduce rules governing amendments to local revenue sources
using statutory instruments, to clarify controls necessary to provide their protection.
The Government, through MoLG,will review the sharing of responsibilities for
professional staff between central and local government in view of the increasing
difficulty to attract and / or retain specific cadre within the local governments. The
review will have to balance the proposals for centralising staff and needs for local
accountability. The Government will also review the responsibilities for pensions. In
view of the centralized wage policy and direct transfer mechanisms, LG should
retain the function of verification of pension beneficiaries in the same way as they
do for payroll.
The Ministry shall lead the development of a local revenue policy to guide the
creation and management of revenues sources.
The Ministry, in conjunction with MoFPED, shall lead the development of a policy,
together with guidelines, for local community contributions. This will be issued to LGs.
The Ministry shall review the LG finance and accounting regulations and manual to
clarify accounting and reporting on donor flows and community contributions.
e) The LGFC
The Commission shall expand or strengthen the roles of the revenue and policy
directorate and strengthen the analytical function on local government financing
and its impact on local service delivery. A proposal for the roles under this function is
provided under section 9.7.
f) Central Government Ministries
Ministries will need to work together with LGs to further clarify grey areas of
responsibilities (see chapter 4). Amendments are to be made to the FDA (including
as necessary the LGA, second schedule) to provide the clarification.
Page 121 of 150Final Draft Report
9.6 Proposed expanded functions of the LGFC
The following are functions proposed under the LGFC policy directorate aimed at
strengthening the analytical role on local government financing and service delivery:
a) Providing technical support to the expanded profile of the LGFC;
b) Working with LGs, to identify and establish a framework for monitoring the capacity
and effectiveness of the local governments in the delivery of local services;
c) Monitoring and resolving impediments which limit the impact of local government
financing on service delivery. The unit should be able to study and advise on cross
cutting issues including laws, policies, institutional mandates and their impact on the
effectiveness of local government financing;
d) Studying new policies and laws and advising and making proposals on mitigating
any negative effects of these items on local government financing;
e) Undertaking, on an annual basis, an impact analysis of LG financing on service
delivery focussing mainly on cross cutting policy issues in the context of the NDP
objectives, and to guide policy debates particularly during the budget planning
process. This report shall be provided to Cabinet, Parliament, NPA and Development
Partners. In this regard, the LGFC will advise on measures and targets to improve
efficiency and levels of local government financing, prepare an annual analytical
publication on LG financing and service delivery, and analytical notes to feed into
the budget strategy and background to the Budget; and
f) Liaise with MoFPED and Economic Development Policy and Research Department
(EDP&R) to provide input to key policy instruments on local government financing.
Page 122 of 150 Final Draft Report
10 FISCAL DECENTRALIZATION ARCHITECTURE- IMPLEMENTATION MATRIX
Recommendation / Action Responsibility
Institution
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Approval of LG financing study report by Cabinet MoLG / LGFC
Launch of the LG Financing study report MoLG
Inter-governmental fiscal relations
Strengthen institutional and legal mechanisms to protect and improve
advocacy for grant financing levels
Review format of budget policy documents (budget strategy,
background to the budget) to include sections on LG service delivery
MoFPED
Review budget cycle to include Cabinet review and allocation of
financing to LG service delivery during budget planning
MoFPED
Introduce an annual Policy brief on LG financing and Service delivery
to Cabinet and Parliament
MoFPED /
LGFC
Amend the Public Finance (Public Finance Bill) law to require MoFPED
to provide a medium term plan for financing LG service delivery to
Parliament in April together with medium term plans (refer to section 4
of the Budget Act)
MoFPED /
LGFC
Strengthen the analytical capacity of LGFC to prepare and provide
policy inputs on local service delivery and LG financing to the budget
strategy and other policy notes to Parliament
LGFC
Improve clarity in Expenditure Assignments
Review and provide clarity on sharing of responsibilities between
central and LGs for areas of overlap or unclear mandates identified in
the study
MoLG / MoPS
LMs
Review the sharing of HR responsibilities between CG and LGs to
improve attraction, deployment and retention of staff to local
government services
Review medium term allocations of LG financing to adjust for
clarifications in roles / mandates
Review the grant system to increase LG discretion and provide for
management services
Develop & issue guidelines providing clarity on interpretation of the
three grants; UCG, Cond Grant and EG, and rules for creation and
operation of the grants
Cabinet
Restructure the conditional grants and the equalisation grant in line MoFPED/
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4 with guidance above and develop guidelines for their
implementation
LGFC
Develop and issue new guidelines on developing sector policies and
grant allocation formulae to provide increased flexibility to LGs in their
implementation and to include provisions of O&M where applicable
MoFPED/
LGFC
Integrate the new structure of the grants into existing system (Chart of
Accounts) for recording, accounting and reporting
MoFPED
Review the levels of the unconditional grant to increase flexibility in
allocating towards the key management services in line with
guidance above
Cabinet
Provide periodic adjustments to the UCG in line with the Constitution Cabinet
Amend the LGA to improve clarity in mandates as agreed above MoLG
Amend the LGA for new definitions of grants MoLG
Amend the LGA to provide for annual adjustment to CG consistent
with UCG
MoLG
Review the aid management manual to clarify the integration of aid
funding for LGs into the grant system
MoFPED
Implement a plan to transfer all financing for LG services into the grant
system
MoFPED
Annual Planning and Budgeting
Amend the Public Finance Bill should include timelines for issuing
budget guidelines including IPFs
MoFPED
Review and align the LG planning and budgeting framework taking
into account the new planning process under the five year NDP
MoFPED/NPA
/LGBC
Provide budget guidelines and IPFs timely to LGs to avoid hasty
planning and budgeting
MoFPED/
ministries
Implement a plan to strengthen theLGBC LGFC
Draw up and implement a framework to provide more funding
towards planning and budgeting activities LLGs
MoFPED/LGF
C
Validate and take into consideration accounts in arrears, outstanding
liabilities and guarantees when preparing LG budgets
MOFPED/LGB
C/LGs
Implement recommendations of the MoLG Annual Assessments of LGs MoFPED/LGF
C
Releases, Reporting and Accountability Mechanisms
Implement a plan to support planning and procurement efforts in
weak LGs
MoFPED/PPD
A
Reinstate submission of Form B as condition for granting quarterly
releases
MoFPED
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4 Clarify rules and procedures for LGs to return unspent balances at end
of FY
MoFPED
Expand direct transfer of funds to health centres and all service
delivery units
MoFPED
Review the Education Act and issue regulations to strengthen the
reporting arrangements between the head teachers for secondary
schools and the LG administration
MoES
Engage sectors ministries to adopt their reporting requirement to Form
B.
MoFPED
Implement a plan to improve capacity of LGs in the use of OBT and
Form B
MoFPED
Implement a plan to strengthen the capacity of internal audit function MoLG/LGs
Implement a plan to improve capacity of Councils in their oversight
role
MOLG/LGs
Revenue enhancements
Implement policy and administrative measures to improve revenues
collections
Develop a policy to guide and enforce collection of revenues in LGs. LGFC
Review LST and Property rates to minimise exemptions and to evolve a
more flexible and efficient mechanisms for setting rates
LGFC
Review the tax tribunals to make them more representative and
effective in handling tax conflicts
LGFC /
MOLG
Design and implement sharing mechanism of revenues from fishing
and forestry between NFA and Fisheries department on the one hand
and LGs
LGFC /
MOLG
implement the provision of the Local Government Rating Act, section
37, linking revenues collections to service delivery
LGFC /
MOLG
Develop a policy to bar political interference in the administration of
local revenues
LGFC /
MOLG
Set up an Independent Revenue Department in each local
government and provide a revenue matching grant based on
achievements above targets
MOLG/LGs
Design and introduce a system of transparent penalties for late or
non-payment.
LGFC /
MOLG
Establish a unit within the District Court for the expeditious processing
of delinquent payments of taxes and duties.
MOLG/LGs
Review the LGs Act to provide greater enforcement powers similar to
those of URA
MOLG
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4 Establish a revenue enforcement section to replace the former local
administration police.
MOLG
Develop and implement a revenue enhancement communication
strategy
LGFC
Implement section 12 of Local Government Rating Act for mass
property valuation
LGFC /
MOLG
Strengthen revenue management systems
Develop and implement a strategy to improve tax payer registration
and billing and overall tax administration using automated systems
LGFC /
MOLG
Set up a fund to support the implementation of automated revenue
database management systems across LGs
MOLG
Introduce new Revenue Options
Commission a study to design new revenue options including property
service tax, solid waste management tax and introducing municipal
bonds.
LGFC
Develop a policy and guidelines for introducing and managing
community contributions to service delivery
LGFC /
MOLG
Review the LG finance and accounting regulations and manual to
clarify accounting and reporting on donor flows and community
contributions
MoLG / LGBC
Revised Fiscal Decentralization Architecture (FDA)
Formally assign roles and responsibilities under the FDA OPM
Launch of the revised Fiscal Decentralization Architecture (FDA) MoLG / LGFC
Publish and disseminate the revised FDA together with guidelines on its
implementation
LGFC
Establish statutory instrument to regulate the creation of new districts
and revision of revenues sources to protect financing for local
governments
MoLG
Review the LGA and LF financial regulations to provide for
amendments to cover provisions of the revised FDA
MoLG
Undertake annual assessments of the performance of LG system
covering local government financing and service delivery based on
agreed policy targets as part of policy monitoring
LGFC
Introduce comprehensive assessments, every 3rd year, of operations of
fiscal decentralisation and LG financing to provide a basis for
renegotiation and to inform policy reform actions for the next three
years
Page a of 150 Final Draft Report
ANNEXES
Page a of 150 FINAL Draft Report
ANNEX 1: SUMMARY REVIEW OF FDS
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
Inter-governmental fiscal relations
Existing legal and
institutional mechanisms
to protect and ensure
appropriate growth of
central government
grants over time is not
being followed.
Strengthen institutional and legal
mechanisms to protect and
improve advocacy for local
government financing levels
Assessment of data on grants over
past years
Views from all LGs raising concerns
on levels of grants
Recommendations endorsed
through consultations with LG
Associations, NPA, Development
Partners, Members of Parliament
1. Strengthen the analytical function of LGFC to
prepare and provide sufficient input into a process
that protects LG financing
2. Implement a grant mechanism that includes the
participation of LGs and their input in determining
allocation parameters right from the on-set of
creation of grants
3. Move towards reducing the number of grants and
towards addressing issues of value for money and
increase in the real terms of these grants
4. Amending the law to enhance the definitions of
the grants and or provide for sharing
arrangements
Raise the profile of discussion of
local government financing issues
to Cabinet and Parliament as an
agenda item
Views from all LGs raising concerns
on levels of grants
Recommendations endorsed
through consultations with LG
Associations, NPA, Development
Partners, Members of Parliament
Amend the Budget Act to provide for the
discussion of local government financing as part of
the Budget process
Some decentralized
services under the LGA
Cap 243 are not being
implemented due to
inadequate or no
financing
For every decentralized service,
there should be commensurate
financing or others these functions
be performed by the centre
LGs: Soroti, Moroto, and in
particular, the hard to reach /
hard to stay LGs; Kalangala, raised
issues with ability to attract and
retain staff
MoPS, MoLG and LGFC will need to conduct a
comprehensive review of decentralized services
per LG and produce minimum standards and
funding requirements as to aid ideal
implementation of decentralization policy in
general
Page b of 150 FINAL Draft Report
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
The current grant system
is limited in addressing
local needs for sufficient
support supervision,
monitoring and
maintenance of local
investments
The Grant system should
deliberately accommodate
significant provisions for O&M, M&E
and support supervision right from
the definition of parameters and
grant guidelines. Some
investments are at presently at risk
because of the cost of repair is far
higher than what is allocated for
O&M
All LGs sampled for this study. In
particular, CAOs in Moroto, Soroti,
Kiruhura raised issue of resources
for recurrent expenses
Structured consultations with key
stakeholders endorsed the
recommendation.
More effective support supervision and monitoring
will reduce risks on investment and result into
enhanced value-for-money and increase
sustainability of infrastructure stock
There are significant
levels of financing from
the national budget for
local government
services but which do not
flow through the grant
system e.g. NUSAF
Implement a plan to transfer all
financing for LG services into the
grant system
LGFC, Sectors (Education, Water),
review of budget documents
Ensure that all financing to LGs is subject to the
same rules and a more equitable resource
allocation. This further calls for amending the aid
management manual to clarify the integration of
aid funding for LGs into the grant system
Annual Planning and Budgeting
Implement a series of
actions to make the
Harmonized LG and CG
Planning and Budget
Cycle meet critical
deadlines
Public Finance Bill should include
guidelines that ensure timely
submission of IPFs to LGs to avoid
hasty planning and budgeting
Most LGs especially, Kiruhura,
Moroto, Masindi and Arua
Municipality. Participants of
workshop at Ridar Hotel (LGFC,
MOFPED, Selected District Officials
including the District CFO Wakiso)
Starting the fiscal calendar in August for
preparation for next FY would provide more time
for planning in LGs and absorb pressures in
instances where final IPFs are delayed
The Public Finance Bill will need to include further
details pertaining to financing of LGs in general
(including the proposed FDA in this report) but
specifically on the changes to timelines provided
in the reviewed cycle. Proposed is a cut-off date
provided to sectors to submit IPFs to MoFPED is key
in ensuring subsequent timely release of IPFs to
LGs.
Review and align the LG planning Arua, Masindi, Kisoro, Oyam and Benefits
Page c of 150 FINAL Draft Report
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
Community Participation
in planning and
budgeting is low due to
inadequate financing of
this process (projected by
a study in 2009 to be
facing a 44% funding
gap)
Some LGs have submitted
Final Accounts showing
backlog of revenue
arrears and outstanding
liabilities
and budgeting framework taking
into account the new planning
process under the five year NDP
Lira Alignment of the overall all BFP process with NDP
monitoring framework is critical to assessment of
the overall implementation of the NDP.
Implications
NPA working with LGBC will need more support to
ensure that all LGs elaborate and adhere to their
own LG 5-year Plans and within this planning
period, LG Annual plans roll towards meeting own
targets – resulting in an improvement from the
outgoing 3-year rolling plan process
Provide further support so
strengthen theLocal Government
Budgets Committee (LGBC)
Masindi, Oyam, Arua Improving the analytical function of LGFC will
create more robust basis for LGs’ negotiation on
grants and other LG concerns that increase LG
ownership in the process. In addition review LGBC
Terms of Reference and ensure its decisions are
implemented annually in the P&B process
LGs should deliberately provide
funding for the participatory
planning process
Kisoro, Masindi, Arua, Oyam, Lira
and Soroti Municipality
Enhancement of allocations from the local
revenue pool towards support of the planning
process will improve community engagement at
the lowest levels of LGs and promote downward
accountability.
Validate and take into
consideration accounts in arrears,
outstanding liabilities and
guarantees when preparing
subsequent LG budgets
Analysis of Final Accounts of
selected LGs under the study
An overall fiscal effort that gradually reduces
arrears and LG liabilities will create LGs fiscal
balance and remove ‘past burdens’ from derailing
future local investments. In addition this would
ensure more realistic budgets are prepared
Releases, Reporting and Accountability Mechanisms
Improve timeliness of releases to
LGs to ensure that releases to LGs
are made and received within the
first month of every quarter
Arua, Masindi, Kisoro, Oyam,
Kiruhura and Lira
Timely releases will improve service delivery in a
timely fashion, streamline implementation and
contracting and minimize losses and transaction
costs
Page d of 150 FINAL Draft Report
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
There have been
improvements in the
release system in terms of
predictability but not in
timing and actual
amounts
There are still instances
where transfers are made
late in the financial year
leading to large unspent
balances which
according to the law
should return to central
government
While allocations reach
Districts relatively in
matter of days which is
commended, though now
the focus is improving on
release from District to
service points (facing 2-3
weeks delay).
LGs receive funds based on
approved Work-plans whether
these funds come early or late.
Retaining unspent funds within a
framework for its accountability
would be reduce transaction costs
and improve efficiencies in service
delivery while keeping unfunded
work-plans in check
All LGs. Retreat with LGFC and
selected District Officials as well as
MoFPED representatives and was
echoed at the National
Consultative Workshop
Review rules and procedures for LGs to return
unspent balances in the current Public Finance Bill
There is need for LGFC together
with the MoFPED to work out a
mechanism to allow Straight
Through Payments (STP) to be
directly to service units but still
ensure that all accounting
procedures are followed
Arua, Masindi, Kisoro, Oyam and
Lira
STP is recommended for service delivery points
however, this will need to follow through with
stricter rules for accountability on the side of
facility in-charges and the district heads of
departments in their respective sectors and
ultimately the CAO.
Sustain reforms to the OBT
and Form B
Engage sectors ministries to adopt
their reporting requirement to
Form B.
All LGs visited including sectors
notably (Gender Labour and
Social Development)
Sectors should provide more specific requirements
to be added to the Form B and to the LG-OBT
overall that meet their unique reporting needs
especially qualitative information
Page e of 150 FINAL Draft Report
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
Local Revenue Enhancement
There is overall
weaknesses in Local
Revenue Administration
While LST and Property tax
have high potential to
generate LRRs, they are
being undermined by
wide ranging exemptions
and political action
Some Revenues meant for
LGs are still being
collected by the Central
Government
1. In the short run, the CG will need
to invest in initiatives to improve
revenue management and tax
administration especially on
property valuation
2. A National Local Revenue Policy
needs to be elaborated to present
a framework for LRE, levies and
taxes payable and punitive
measures (including action on
political actions that deter local
revenue collection)
All LGs visited With better LRE and administration, the yield from
current revenue sources would go up from the
current 50% potential to 70-80% in the medium
term. This would overall reduce dependence by
LGs on the central government transfers for
funding and spur fiscal autonomy
Review LST and Property rates to
minimize exemptions and
implement mass property
valuation.
A caravan approach in the short
term would be required (starting
with approved plans in districts) to
cover substantial ground on
property valuation rather than
leave this process on a district per
district basis
All District Visited (especially,
Masindi, Moroto, Lira, Soroti and
Arua Municipal Councils)
Improvements will encourage all service
beneficiaries to contribute towards services they
receive, promote more equity in revenue
generation, cut down valuation time and bring
properties into tax bracket faster than present. The
yield with these improvements is projected to
reach Shs.206billion annually and would a go a
long way in closing the current LG financing gap.
Design and implement sharing
mechanism of revenues from
fishing and forestry between NFA
and Fisheries department on the
one hand and LGs
Wakiso, Namayingo, Kalangala, Allowing revenues from forestry and fisheries would
enhance greatly affected LGs’ local revenue
yields. This would enable better management of
these natural resources and stricter enforcement
of environment regulations since LGs will now be
part of the rules enforcement.
The Current legal
framework is not
supportive enough of LGs
Improvements on the Royalties Act
are needed with participation of
LGs
All LGs especially the Municipal
and Town Councils in Lira, Wakiso,
Soroti and Arua
LGs could raise an estimated shs16.5 billion from all
sources with improvements in the Act. More
effective collection of revenues from selected and
identified would be guided well with needed legal
improvements
Page f of 150 FINAL Draft Report
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
Communities are more
willing to pay for direct
consumption of a service
than direct taxes
Commission a study to design new
revenue options including
property service tax, solid waste
management tax and introducing
municipal bonds.
National Consultative Workshop
(with strong submission from
Mbarara Municipality and Wakiso
District Council)
The study proposed would provide direction on
revenue options and how to improve yield on all
revenue sources for every District
It was deduced that willingness to
pay is highly linked to services
received. Develop a policy and
guidelines for introducing and
managing community
contributions to selected service
delivery units. The study has made
proposal for community
contribution in education and
health but accountability
mechanisms can be worked out
on a sector by sector basis
All districts, Consultation with UAAU
and ULGA, as well as participants
at National Workshop held in
August 2012 in Kampala
Community contribution for direct services would
not only support service delivery points financially
but would also create individual and collective
responsibility and participation in community led
development especially in health and primary
education.
Investment on community sensitization is important
as CG works out modalities for accountability for
community contributions suggested.
Proposed New Revenue
Sources
Residence Tax on permanent
houses with values above a
threshold set by individual LGs
Solid Waste Tax in Town Councils
and Municipalities
Wakiso, Mbarara and Entebbe
Municipality, Hoima (already
collective solid waste tax with
much success),
Estimated potential of over shs.90 billion in the short
term and up to 150billion in the long-term is
projected from these two sources annually. It is
also important to note that contribution
encourages downward accountability which will
result into efficient delivery of services
Revised Fiscal Decentralization Architecture (FDA)
Revise the FDA based on
findings /
recommendation of the
study
The revised FDA aims to protect
and promote local government
financing, enhancing control in
the management of
intergovernmental fiscal relations,
strengthening LG capacity for
supervision / monitoring of service
delivery and increasing discretion
in local decision making
The FDA to consists of 6 pillars;
legal and policy, revenue
assignments, expenditure
assignments, intergovernmental
fiscal relations, institutional roles
Proposals for FDA discussed and
enriched at workshops with LGFC,
LG associations and review of
literature arising from international
best practices (Kenya, Ghana,
China and Thailand) as well as
other consultative forums
Predictable, equitable and sustainable financing
of LGs and the decentralized functions according
to the LG CAP 243.
The Institutional roles will be clearer and
accountability for each will be easy and followed
up.
Sharing of nationally generated revenue between
different levels of Government will improve the
budget formulation process, ensure sustainability in
funding, focus on the O & M will be addressed and
local government issues will be discussed as the
resources going to them will be more clearer.
Page g of 150 FINAL Draft Report
Study Theme
Study Findings/
Observation
Recommendation for Government
to take Action
Stakeholders making the stated
action/ recommendations
Implications/Benefits from implementing this
measure
and management and
coordination: The Architecture
among other things:
Formally assigns responsibilities for
supervision / monitoring
Explores alternatives for vertical
sharing between central and LGs
namely
a) Share of National Revenue to
which a % base allocation can be
made to meet the cost of
decentralized services
b) Extent financing of LGs from a
source (just like it was with 1% of
VAT)
c) A combination of (a) and (b)
Page a of 150 FINAL Draft Report
ANNEX 2: COMPENDIUM OF LEGAL FRAMEWORK FOR REVIEW
1. Article 193 of the Constitution of the Republic of Uganda
2. Local Government Act Cap 243 First, Second &Fifth Schedule
3. Public Finance Bill (Draft)
4. Local Government Act Cap Schedule No.4
5. Budget Act
6. Royalties Act
7. Local Government Finance and Accounting Regulations
Page b of 150 FINAL Draft Report
ANNEX 3: LIST OF PEOPLE MET
A1 CENTRAL GOVERNMENT
Office of the Prime Minister
Timothy Lubanga Ag. Assistant Commissioner, Coordination and Monitoring
David Rider Smith Principle Advisor, OPM
National Planning Authority
L Tisasirana Executive Director NPA
DhizaalaSanon Moses Head Research, Innovation and M&E
Ministry of Finance Planning and Economic Development
Kenneth Mugambe Commissioner Budget Policy and Evaluation MoFPED
Johnson Mutesigensi Program Coordinator, FINMAP, MoFPED
Albert Musisi Acting Commissioner, Economic Development Policy &
Research
Ministry of Local Government
Eng. Andrew Kizza Principle Inspector, District Inspectorate Department
Local Government Finance Commission
Johnson Bitarabeho Chairperson LGFC
Lawrence Banyoya Commission Secretary
AshabaAheebwa Director Finance and Administration
Adam Babale Principle Revenue Officer
Johnson Gumisiriza Principle, Local Revenue
Ministry of Gender Labour and Social Development
Titus Ouma Principle Social Gerontologist
Leo Nahabago Principle Policy Analyst
John Okiror Head of Planning
Ministry of Education and Sports
Godfrey Donald Dhatemwa Commissioner Planning
Nzirwe Ester Commissioner Primary Education
Ministry of Water and Environment
Edward Masiga Budge and Monitoring
Samuel Otube Commissioner Planning
Edward Masiga Senior Economist
Ministry of Works and Transport
Eng. Kitonsa Principle Engineer
Ministry of Health
Dr. Timothy Musila Senior Health Planner
Ministry of Agriculture, Animal Industry and Fisheries
Samuel Ssemanda Commissioner Agricultural Planning, MAIIF
Page c of 150 FINAL Draft Report
Uganda Road Fund
Chris Ntegakarija Technical Assistant, URF
John Ocitti Manager Fund Management, URF
Andrew Naimanye Manager Planning and Programming
A2 MEMBERS OF PARLIAMENT
Hon. Kintu Florence Chairperson Sessional Committee on Public Service
Hon. Magyezi Raphael Vice Chairperson Sessional Committee on Local
Government
A3 DEVELOPMENT PARTNERS
Alice Kenrick Governance Advisor, KfW Office
AnnetMpabulungi-Wakabi Team Leader Governance, UNDP
Martin Onyach-Olaa Senior Urban Specialist, World Bank Uganda
LivBjornestad Fiscal Economist TASU-JBSF World Bank Uganda
Jenifer Bukokhe UNCDF & Head Decentralization Donor Working Group
ParticiaAmong Internal Auditor- Irish Aid
Daniel Iga Senior Advisor Irish Aid
Tim Williamson Managing Consultant Praxis Development Consultancy
A4 NATIONAL ASSOCIATIONS
James Kiiza-Amooti Secretary General, Urban Authorities Association of
Uganda
Getrude Rose Gamwera Secretary General Uganda Local Governments Association
Page d of 150 FINAL Draft Report
B DISTRICTS
B1 DISTRICT LOCAL GOVERNMENTS
Wakiso
David KigenyiNaluwayiro Chief Administrative Officer
Stephen Kasumba District Planner
Sophia Nalukulembe Senior Finance Officer
Nixon Kyeyune District Statistician
Male Mukasa Ag. District Engineer
David Kabaale Accountant
Nathan Lujumwa A/Chief Administrative Officer
Robert Kagwire For District Health Officer
Rebecca Ssabaganzi District Natural Resources Officer
Micheal Ssekandi District Internal Auditor
James Musaazi Senior Planner
Masindi
Fred Kisembo A/ Chief Administrative Officer
Moses Kalyegira Chief Finance Officer
Wilson Isingoma District Chairman
Eng. Davis Byaruhanga District Engineer
Agaba B Rogers Principle Internal Auditor
Sam Wakabi District Natural Resources Officer
Lawrence Tusimomuhangi District Environmental Officer
DeogratiusByakagamba Senior Education Officer
ByabakamaBlazio District Planning Officer
Mugisa Julian Roads Inspector
Kugonza Mansour Department of Accounts
Magezi B G Abwoli District Planner
Julius Balikagira Ag. Senior District Planner
Moroto
Stephen Owuma Chief Administrative Officer
Francis Okwi Ag. District Agricultural Officer
Lowot Musa District Works Officer
Moses Aleper Chief Finance Officer
Kalangala
Balemezi Actual Chief Administrative Officer
Godfrey Jingo Chief Finance Officer
Mutebi Ronald District Education Officer
Dr. Hillary Bitakalabye District Health Officer
Mayingo Jimmy District Statistician
Eng. Novati M. Baliremwa District Engineer
Jude TadeoMusaazi Snr. Community Development Officer &Water
Mobilizer
Kisoro
John Okolimo Chief Administrative Officer
Dr. Stephen Nsabiyumva District Health Officer
Page e of 150 FINAL Draft Report
Amos Hakizimana Speaker of Council
VicentMudanga District Natural Resource Officer
Nvuriye S. G Principle Accountant
AnatoliNkusi Head of Finance
Godfrey Kagaba Senior District Accountant
Francis Bainemaana District Planner
John Banzubaze Superintendent of Works
Richard Ssemucyo Senior Accountant
Mpigi
Ssekalegga Joseph District Works Officer
K. E. Namanya Chief Finance Office
Dr. Nansanga District Medical Officer
JascentNdangire District Education Officer
Paul Kirabira District Planner
WycliffNdagire A/Chief Finance Officer
Soroti
Emmanuel Wakwesa Assistant Statistician
Okello C A Chief Administrative Officer
Justine Opolot Chief Finance Officer
Ajotu Benjamin District Veterinary Officer
Ejura Martins Assistant District Health Officer
Jane Akiror A/Chief Administrative Officer
DonathEswilu Ag. District Chief Administrative Officer
OunoEtoyu District Education Officer
Margaret E. Acaya District Community Development Officer
Onega Opio Ag. District Engineer, Soroti Works Department
Kapchorwa
Omuge George William Chief Administrative Officer
Franklin Cheptoyek Ag. District Engineer
Olal David William District Water Officer
Patrick Mangusho Head of Finance
Andrew Teko District Planner
Michael Cheptoek District Education Officer
ChekwuruiSemu Albert District Community Development Officer
Namayingo
Kaleeba Peter A/Chief Administrative Officer
Dr. Patrick Magoola District Health Officer
Godfrey Kirya Ag. District Engineer
Muganza Emmanuel District Natural Resource Officer
KaawoKawere District Education Officer
Fred Igoma DPO
Michael Bwamuki District Health Educator
Fred Omanyaala Population Officer
Mayende A District Accountant
Peter Kaleeba A/Chief Administrative Officer
Page f of 150 FINAL Draft Report
Betty MubiitaNandudu District Community Development Officer
Arua
Draku Anson Abamil Senior Assistant Engineer, Arua
ShaphanAndeku District Planner
Wadri Sam Nyakua Chairman
Ronald Dravu Principal InternalAuditor
Roy Angumaniyo Senior Accountant
Oyam
Robert Charles Ogwang A/Chief Administrative Officer
Okello Norman Oduka District Education Officer
Moses Opio District Natural Resources Officer
Omor Charles Acting Chief Finance Officer
Wallace Adimo District Road Inspector
Patrick Okwir Assistant Water Officer
John Mark Agong District Planner
Luwero
Florence Namubiru Ag. District Auditor
Charles Luzze Ag. District Planner
Florence Katasi District CDO
Dr. Namugezi G Agricultural Production Officer
TeopistaGateese Senior Environment Officer
Geoffrey Walakira Senior Accountant
William Kibirige Accountant
SandeKyoma Chief Administrative Officer
Segawa G Chief Finance Officer
Ivan Serwambala Engineer Works
Amos Kalema A/Chief Administrative Officer
Francis Kyeyune Ag. Deputy CAO
Edith Nakigudde Senior Community Development Officer
Rev. Serwambala C District Education Officer
Kiruhura
Joseph Chief Administrative Officer
Mwebaze Emmanuel District Water Officer/Engineer
Dr. David Kamya District Health Officer
William Rwanyarare Senior Officer in Civil Works Department
Patrick Muhoozi District Finance Officer
B2 MUNICIPAL COUNCILS
Entebbe Municipality
David KyambaddeMulyabitte Deputy Town Clerk
FreddrickKaweesiMutagubya Chief Finance Officer
Ssemombwe N Joseph Senior Economist/Planner
Samson Semakula Municipal Agricultural Officer
Nkuubi Luke
Ssemombwe J Senior Economist
Joseph MukiibiKiwanuka PEE
Page g of 150 FINAL Draft Report
Pamela Kobusingye Procurement Officer
Dr. Kalyesubula John Municipal Health Officer
Arua Municipal Council
BoscoAsega Internal Auditor
Charles Bithulu Ag. Chief Finance Officer
Marshal Anguyo Statistician
Fred Bada Senior Planner
Lira Municipal Council
Awio Patrick Principle Treasurer
David Bagenda Municipal Engineer
Soroti Municipality
Monday Richard Town Clerk
John BoscoOjur Ag. Medical Officer of Health
Abraham Oryokot Principle Treasurer
Stephen Enou Chief Finance Officer
Masindi Municipality
Fredrick Isingoma Senior Assistant Town Clerk
B3 TOWN COUNCILS
Mpigi Town Council
Ssendagire. W Head of Finance
Susan Nakitende Senior Accounts Assistant
Edward Kigozi CDO Mpigi Town Council
Namayingo Town Council
Charles Lubaale Accountant
Douglas Barasa Accounts Assistant
KakaireSwaliki Accounts Assistant
WiberforceWalukano AASP (Crop Husbandry)
Enock Waiswa E/Accounts
Douglas Barasa Ag. Town Clerk
Kiruhura Town Council
Joseph Turyaija Senior Accounts Assistant
Kapchorwa Town Council
Chelomo Alex Town Clerk
B4 LOWER LOCAL GOVERNMENTS
Kammengo Sub County - Mpigi
Patrick Kakooza Senior Accounts Assistant
IdrisWalugembe Community Development Officer
Acaba Sub County Oyam -
Denis Ogo Sub-County Chief
Justine Ogwang Health Assistant
Patrick Obong Bonny A/Community Development Officer
Charles Owinya Accountant
Buswale Sub County - Namayingo
OumaLeudy Sub County Chief
Nadunget Sub County - Mororo
Naru Gertrude Sub County Chief
JenifferAkot Community Development Officer
Wakiso Sub County – Wakiso
Page h of 150 FINAL Draft Report
Nakirya Harriet Senior Accounts Assistant
Nakyazze Emily Community Development Officer
Logiri Sub County – Arua
Draku Anson Abamil Senior Assistant Engineer, Arua
Kamdini Sub County- Oyam
Robert Okello Sub-Accountant
C SERVICE DELIVERY POINTS
Primary Schools
Barnabas Katumba Headmaster Chadwick Namate Primary School, Entebbe
Richard Odongo Deputy Head Teacher Ambalal Primary School, Lira
Hosea Kiiza Head Teacher Kichandi C.O.U Primary School, Masindi
David Adea Head Teacher Wigweng Primary School, Oyam
Akongo Jane Head Teacher Kichinjaji Primary School Soroti Municipality
HellenAmulenAligoi Head Teacher Nadunget Primary School, Moroto
RobinaBulya Head Teacher Bessania C.O.U Primary Schoool, Mpigi
Bernard Makubuya Head Teacher Buswa Primary School Kalangala
Christopher Niringiye Head Teacher, Sseseme Integrated School Kisoro
Christine Akol Head Teacher, Kaswa Primary School Kiruhura
James Kizito Head Teacher Kifuyo Primary School Namayingo
Godfrey Chepkurui Head Teacher Kaplelko Primary School Kapchorwa
Head Teacher Arua Public Primary School
Health Units
Dr. Agaba In-charge Luwero Health Centre IV
Erasmus Chemunumwa KaplilkoHealth Centre II, Kapchorwa
Maureen Nampijja In-charge Bwendero Health Centre IV, Kalangala
Dr. Iraku E.U.K In-charge Oli Health Centre Arua Municipality
Albert Nuwagira Records Assistant Kiruhura Health Centre IV
Nelson Nturu In-charge Lira Municipal Council Health Centre II
AngelloHarera Senior Clinical Officer, Nyabihuniko Health Centre III
Tile Kalisto Medical Clinical Officer, Anyeke HC IV Oyam
RobinahKugonza Kigungu Health Centre III, Entebbe Municipality
JesperOnyamasi In-charge Nadunget Health Centre III
Janet Namutebi Nursing Assistant Mihembero Health Centre II, Masindi
Irene Aguti Snr. Medical Officer Kichinjaji Health Centre III Soroti
Municipality
Water Points visited
Namayingo Borehole at Kifuyo Primary school
Kisoro Gravity flow Tank in Chahi Sub County
Masindi Rukondwa and Kiima Water Points
Kiruhura Rwabigyemano Water Dam
Oyam Alyek Deep Well in Aber Sub county
Arua Anzeru and Ejupasi Boreholes
Lira Municipality Water point at Municipal Market
Wakiso Borehole near Health Center III Wakiso Sub County
Road Works visited
Namayingo Bulamba and Malendele Road works
Page i of 150 FINAL Draft Report
Lira Independence Road in Lira Municipality
Kalangala Kalangala in-land Road works
Kisoro Murrum Roads in Chahi Sub-County
Kiruhura KirengaNgiraKanyanya Road
Arua Lazebo-Oliba Road in Logiri Sub county
Masindi Municipality Road repairs
Masindi PakanyiNakalongo Road Repairs
Arua Piida-PeOpok Road in Kamudin Sub County and David
Kolo Old Bridge to tarmac under UNRA & District LGMSDP
Page j of 150 FINAL Draft Report
ANNEX 4: LIST OF DOCUMENTS REVIEWED
1. ACODE (2010) Uganda Local Government Council Score-card Report 2008/9: A
Comparative Analysis of findings and Recommendations for Action; ACODE Research
Series No. 32, 2010
2. ACODE (2011) Uganda Local Government Council Score-card Report 2009/10: Political
Accountability, Presentation and the state of service delivery; ACODE Series No. 42, 2011
3. Advanced Project in Management and Policy (2010): Local Government Fiscal discretion
in Uganda
4. Annual reports on sector conditional grants negotiations and review of guidelines
5. Arua District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
6. Arua District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
7. Draft Policy Paper on the Transformation of the Uganda Public Service (2010)
8. Draft Public Financial Management Strategy for Uganda
9. Fiscal Decentralization Working Group Report 2002
10. Global Forum on Local Development (2010) Pursuing MDGs through local development
Kampala
11. Hard to reach Policy by Ministry of Public Service (2010)
12. Kalangala District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
13. Kalangala District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
14. Kapchorwa District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
15. Kapchorwa District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
16. Kiruhura District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
17. Kiruhura District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
18. Kisoro District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
19. Kisoro District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
20. LG PEFA Study (2005)
21. Lira District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
22. Local Government Act (CAP 243)
23. Local Government Country Integrated Fiduciary CIFA Assessment 2004
24. Local Government Finance Commission: The Fiscal Decentralization Strategy Paper 2002
Kampala
25. Local Government Public Financial Management Assessment 2005
26. Luwero District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
27. Luwero District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
28. Masindi District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
Page k of 150 FINAL Draft Report
29. Masindi District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
30. Ministry of Finance Planning and Economic Development (2001): The Budget Act 2001;
Kampala
31. Ministry of Finance Planning and Economic Development (2011) Guidelines for budget
preparation and reporting using Local Government Output Budgeting Tool (LGOBT),
Kampala
32. Ministry of Health (2011) Health Sector Strategic Plan 2010/11-2014/15 and Investment
Plan: Promoting people’s health to enhance socio economic development Kampala
Uganda
33. Ministry of Local Government (2006) Local Government Sector Investment Plan Kampala
34. Ministry of Public Service (2010) Assessment of the impact of hardship allowance on
attraction and retention of staff in ‘hard-to-reach’ areas Kampala
35. Ministry of Public Service (2010) Circular Standing Instructions No. 2 of 2010: Payment of
hardship allowance in ‘hard to reach’ areas PMD 80/80/02 Kampala
36. Ministry of Public Service and Ministry of Local Government (2009) Final Report: Joint
Review of the Pilot of Local Government Client Charters under 9th EDF Support to
Decentralization Program
37. Moroto District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
38. Moroto District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
39. Mpigi District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
40. Mpigi District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
41. Namayingo District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
42. Namayingo District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
43. Oyam District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
44. Report on the Development of a Strategy to Implementation of PFM systems in Local
Government in Uganda 2007
45. Republic of Uganda (2010) National Development Plan (2011/12- 2014/15) Growth,
employment and socio economic transformation for prosperity Kampala
46. Sector Budget Support in Practice
47. Soroti District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
48. Soroti District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
49. The Joint Assessment Framework (JAF 1-3)
50. The Local Government Finance Commission Act 2003
51. The Public Finance and Accountability Act
52. Uganda Bureau of Statistics (2011) District Population Profile of 2011, Kampala
53. UNDP (2005) Fiscal Decentralization and Poverty Reduction
54. Wakiso District Local Government (2010/11) Local Government Finance Commission:
Submission of Budget Framework Paper for the year ending June 30th 2011
55. Wakiso District Local Government (2010/11) Local Government Finance Commission:
Submission of Final Accounts for the year ending June 30th 2011
56. WB Local Government Fiduciary Risk Assessment (2004)
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