1. 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

2. Why the Emphasis on Decentralization?
Political Economic Globalization
Imperative Decentralization
From Government Fiscal Localization
to Governance Decentralization

3. Decentralization Framework
Intergovernmental Relations
(Mix of) variants
Deconcentration
Delegation
Devolution
The need for a broad framework

4. Why Is It Important? Efficiency Allocation Revenue mobilization
Service Delivery Policy
Implementation
Poverty People
Place
Growth Mixed evidence
Does it matter?
Nation Building Structure
Asymmetry

5. Tools and Strategies Constitutional and legal framework
Macro stability
Structure and function
Transfers
Sustainability
Sectoral

6. Decentralization and Poverty Reduction Strategies
Fostering public participation in policies and programs that affect people’s lives (Benin)
Stressing local government’s role in preparing, executing, and monitoring antipoverty programs (Albania, Benin)
Coordinating foreign assistance and implementation of donor-financed projects (Burkina Faso, Mali)
Improving delivery of public goods and services (Benin, Kenya, Honduras)

7. Objectives of Decentralization Identified in PRSPs
Strengthening budget preparation and execution (Albania); and bringing the administration closer to the people (Benin, Mali)
Enabling local governments (Burkina Faso)
Enhancing democracy and control over locally elected leaders (Burkina Faso, Mali)
Strengthening consultative processes (Albania, Ghana)

8. Fiscal Decentralization
Luiz de Mello
Fiscal Affairs Department
International Monetary Fund

9. Decentralization and the Macroeconomy
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

10. Budget Balance and Government Size
Central Government Size and Fiscal Position -
Sub-national Government Size and Fiscal Position -
Full Sample
Full Sample 2 1
0.5 10 20 30 40 50 60 -2 5 10 15 20 25 30 35
Sub-national Gov. Balance
-0.5 -4
Central Government Balance -1 -6
-1.5 -8 -2
-10
-2.5
-12 -3
Central Government Size
Sub-national Gov. Size

11. Budget Balance and Government Size
Sub-national Government Size and Central
Sub-national Government Size and Central
Government Fiscal Position - Full Sample
Government Fiscal Position - 2
Developing Country Sample 1 5 10 15 20 25 30 35 -1 5 10 15 20 -2
Central Government Balance -2 -4
Central Government Balance -3 -6 -4 -5 -8 -6
-10 -7
-12 -8
Sub-national Government Size
Sub-national Government Size

12. 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)

13. 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).

14. Decentralization in Africa
James Hicks (AFTU1)

15. Africa Region: High Degree of Centralized Power ...
Subnational Expenditures,
(Period averages, in percent) 1/
as % of total
as % of GDP Govt. spending No. Countries
Africa
Asia
Latin America & Caribbean
Middle East
OECD 2/
Transition economies
Large federations 3/
World
Sources: Government Finance Statistics, IMF. (Prepared by Luiz de Mello, Fiscal Affairs Department, IMF)
1/ Unweighted averages.
2/ Includes Israel
3/ Comprises India, Malaysia, Argentina, Brazil, Mexico, Australia,Austria, Belgium,
Canada, Germany, Spain, Switzerland, and United States.

16. … But With Some Degree of Variation
Local Government Expenditures as % of GDP in Sample of African Countries
Country Expenditures in % of GDP
Zambia (l997) 0.5
Ghana (l996) 2.6
Senegal (l997) 1.7
Uganda (l997/98) 4.0
Swaziland (l998) 0.6
Zimbabwe (l997) 3.0
Non-weighted average
for the six countries 2.1

17. Wide Range Expenditure Composition
Composition (%) of Local Government Recurrent Expenditures
Average of
Purpose Six Countries Range
Administration
Education
Health
Housing
Community Amenities
Culture and Recreation
Other
Total Recurrent

18. And, A Range at Revenue Utilization ...
Composition (%) of Local Government Revenues
Average of
Source Six Countries Range
Own Taxes
Own Non-Tax
User Fees
Central Transfers
Borrowing
Other Sources

19. … But, Underutilized Revenue Capacity
SNG Revenue Potential in the Six Countries
% Potential increase with same
tax/fee rate/regulations
Zambia 100
Ghana 70
Senegal 50
Uganda 50
Swaziland 30
Zimbabwe 28
Based on evidence from the six country reports

20. Shared Vision: Victoria Falls Declaration (Delegations from 15 Countries - 9/99)
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.

21. 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

22. 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
Move away from special-purpose funds