Fiscal Decentralization : A Bird’s Eye View 1. Review of Principles & Framework - Robert Ebel (World Bank Institute) 2. Fiscal Decentralization - Luiz de Mello (Fiscal Affairs Department, IMF) 3. Decentralization in Africa - James Hicks (AFTU1) December 18, 2000
Fiscal Decentralization : A Bird’s Eye View. 1. Review of Principles & Framework - Robert Ebel (World Bank Institute) 2. Fiscal Decentralization - Luiz de Mello (Fiscal Affairs Department, IMF) 3. Decentralization in Africa - James Hicks (AFTU1) December 18, 2000. - PowerPoint PPT Presentation
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Fiscal Decentralization :A Bird’s Eye View
1. Review of Principles & Framework - Robert Ebel (World Bank Institute)
Deficit bias– revenue sharing and “common pool” problems
Governance– fiscal rules and prudential regulations– financial information systems, monitoring– hard budget constraints
Service delivery– capacity building– incentives and “agency” problems
Budget Balance and Government Size
Central Government Size and Fiscal Position - Full Sample
-12
-10
-8
-6
-4
-2
0
2
0 10 20 30 40 50 60
Central Government Size
Cen
tra
l Go
vern
me
nt
Bala
nce
Sub-national Government Size and Fiscal Position - Full Sample
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
0 5 10 15 20 25 30 35
Sub-national Gov. SizeS
ub
-na
tio
na
l G
ov
. B
ala
nc
e
Budget Balance and Government Size
Sub-national Government Size and Central
Government Fiscal Position - Full Sample
-12
-10
-8
-6
-4
-2
0
2
0 5 10 15 20 25 30 35
Sub-national Government Size
Ce
ntr
al
Go
ve
rnm
en
t B
ala
nc
e
Sub-national Government Size and Central Government Fiscal Position -
Developing Country Sample
-8
-7
-6
-5
-4
-3
-2
-1
0
1
0 5 10 15 20
Sub-national Government Size
Ce
ntr
al
Go
ve
rnm
en
t B
ala
nc
e
Pre-conditions for Successful Decentralization
Strengthening managerial capacity at local level (Burkina Faso, Honduras, São Tomé and Príncipe, Tanzania)
Establishing sustained partnership within the government and decentralized administrations (Chad)
Avoiding lack of material, financial, and human resources at the local level (Senegal)
Pre-conditions for Successful Decentralization (cont’d)
Encouraging pragmatism and gradualism (Burkina Faso, Honduras)
Fostering citizen participation through civil society organizations (Burkina Faso, Ghana, Mali)
Improving access to economic and social information (Albania, Burkina Faso).
www.decentralization.org 14
Decentralization in Africa
James Hicks (AFTU1)
Africa Region: High Degree of Centralized Power ...
Subnational Expenditures, 1980-97 (Period averages, in percent) 1/
as % of totalas % of GDP Govt. spending
No. Countries
Africa 2.1 7.6 14Asia 3.4 13.8 9Latin America & Caribbean 3.3 14.7 16Middle East 1.0 1.5 2OECD 2/ 14.7 30.8 24Transition economies 9.6 30.3 17Large federations 3/ 13.5 36.5 13World
Sources: Government Finance Statistics, IMF. (Prepared by Luiz de Mello, Fiscal Affairs Department, IMF)
1/ Unweighted averages.2/ Includes Israel3/ Comprises India, Malaysia, Argentina, Brazil, Mexico, Australia,Austria, Belgium, Canada, Germany, Spain, Switzerland, and United States.
… But With Some Degree of Variation Local Government Expenditures as % of GDP in Sample of African
Countries
Country Expenditures in % of GDP
Zambia (l997) 0.5Ghana (l996) 2.6Senegal (l997) 1.7Uganda (l997/98) 4.0Swaziland (l998) 0.6Zimbabwe (l997) 3.0Non-weighted average for the six countries 2.1
Wide Range Expenditure Composition
Composition (%) of Local Government Recurrent Expenditures
There is need for a shared vision of the basic principles of decentralization which recognizes the specific needs and conditions of the African Continent.
Decentralization should involve the transfer to local government institutions those powers and functions necessary to enable them to: (i) provide services for the local population efficiently and effectively; (ii) provide a conducive environment for local economic development; and (iii) develop and manage local resources in a sustainable manner.
Decentralization should include the provision of access to the resources needed to execute the above powers and functions efficiently and effectively, including financial and manpower resources.
Financial resources should be available to local authorities in a manner which is reliable, adequate, predictable, transparent, sustainable and equitable.
Some Dangers
Miss-matches between local government mandates and size/capacity viability (South Africa example)
Unfunded mandates (decentralizing the deficit)
Contribution to fiscal instability (Argentina, Brazil)
Confusion about mandates—deconcentration (Prefets/Districts) vs. autonomous LGs
Subnational banks
Stronger local governments may support higher (or lower) ethnic tensions
Tentative Recommendations
Keep agenda simple (beware high recurrent expenditures); clear rules of game
Fiscal transfers (including donor supported) on budget and with hard constraint
Support identification of “champion” in charge of overall policy
Recognize capacity differences and seek reasonable transition strategies
Seek to promote leveling of playing field (e.g., equalization grants)
Learning by doing probably good, but mistakes to be made—good monitoring and high transparency