Part I Fiscal decentralisation De- concentration Political Administrative

Part I: Fiscal decentralisation De- concentration Political Administrative Fiscal Delegation Devolution

Building blocks of fiscal decentralisation • Expenditure Assignments • Revenue Assignments • Intergovernmental fiscal transfers • Sub national borrowing Public sector economics, public goods, private goods and club goods Musgrave, Subsidiarity, Pareto optimum

Expenditure Assignments • Assignment of functions and mandates – – Regulatory roles and delivery roles – Devolved – Delegated or Agency – • Subsidiarity principle De-concentrated management Assignment of expenditure modalities – Recurrent – Investment

Expenditure Assignments (2) • General mandate – – Unfunded – • Devolved Used or underutilised general mandate? Specific (or categorical) mandates – Delegated or Agency – De-concentrated management – Own specific mandates - unfunded

Revenue Assignments • Taxes – – Retained (local) taxes – Types of tax (property tax, individual tax) – • Tax sharing Cost of assessment Fees – Specific fees – General fees – Rents

Intergovernmental fiscal transfers and grants • Conditional • Discretionary • Equalisation • Tax sharing (downwards) • Formula based • Matching

Sub national borrowing • Borrowing from government • Loans from the private sector • IFIs and sub sovereign lending • Municipal bonds • Links to revenue streams

Public Private Partnerships • Contracting out / outsourcing • Private finance initiative • Non recourse private financing • Credit enhancements

Types of local expenditure planning and budget process • Recurrent – – • Salaries Goods and services Non recurrent – • Investment / project / development / capital Parallel – Off budget project Links to plans…

Pulling streams of finance together • Follow the budget approval… – – Sector – Local government – Parallel (development partner) – • Allocation in national budget (approved by parliament or assembly) Parallel (private finance) Expenditure tracking by budget codes – Territorial, functional, institutional, economic

Hierarchy of priorities • Be proactive • Essential / do your best • Compliance / minimum work necessary • Do nothing • Efficiency vs accountability arguments for local government – Links to (technical) functional and expenditure assignments. – Links to elected mandates – Different local priorities

The local government / sector interface • Strategic choices (be proactive or do nothing) • Matching funds and discretionary grants • Governance and accountability issues • Regulatory responsibility • Efficiency argument vs accountability argument

Part II: UNCDF

Development challenge for LDFP Many developing countries are amongst the worlds fastest growing economies whilst others remain mired in conflict. Globally there is steady progress towards the Millennium Development Goals and many countries have met some of their targets. Yet, this overall picture hides significant disparities and risks. Over 2 billion people continue to live on less than a dollar a day and whilst absolute levels of poverty are falling, inequalities are increasing. Additionally, natural disasters, changing weather patterns and globalized economic relationships threaten the resilience of communities to external shocks. The result is a more uncertain and differentiated world in which many localities are not sharing the benefits of growth. How can resources be reinvested locally to build resilience and reduce inequalities?

Definition(s) of local development • The outcome of LDFP interventions is sustainable and equitable local development. This means: – Leveraging and using local resources – Providing benefits, employment and services to local people – In economic terms, promoting forward and backward linkages and positive pecuniary externalities – Strengthening and using local institutions – Strengthening local democracy and local accountability (Asia UNCDF retreat 2011)

What is Local Development? "Clearly, it is not just development that happens locally (as all development ultimately does), but rather development that leverages the comparative and competitive advantages of localities and mobilizes their specific physical, economic, cultural, social and political resources. Said differently, in the expression local development the adjective local does not refer to the where, but to the who and the how of development promotion. It refers to the actors that promote it and the resources they bring to bear on it. Development is local if it is endogenous, open and incremental, that is: if it makes use of locality-specific resources, combines them with national/global resources and brings them to bear on the national development effort as additional benefit in a positive sum game. "(Romeo, The Imperative of Good Local Governance, Chapter 3: 2013)

Four Local Development Finance investment instruments (1) 1) Local Development Fund, capitalisation of public financial management systems with fungible capital and investment resources that enables proof of concept of innovative local development finance (e. g. decentralisation, local procurement, local revenue, local public financial management, service provision, infrastructure) 2) Municipal Credit, support to those local governments and other local public institutions (e. g. utility companies) in accessing greater financial resources through new instruments such as municipal debt, public private partnerships, bonds, etc.

Four Local Development Finance investment instruments (2) 3) Local Finance Initiative, structured project finance that provides advice, technical assistance, seed capital and credit enhancement for private (or PPP) infrastructure investments enabling them to secure sustainable finance from (preferably) local capital. 4) G 2 P, piloting and testing micro fiscal grants (social payments, scholarships, compensation etc) in ways that promote local development and complement other investment instruments (linkage with FIPA)

LDF Phase 1 Myanmar? Post crisis Original Uganda, Mozambique etc Mo. U LD F f un d CG Separate account but applying government procedures s LG CDF support to Local planning, budgeting and procurement process

LDF Phase 2 Lao PDR Solomon Islands Mo. U CG LDF funds Transfer according to terms of Mo. U May be mainstream government account or separate account but applying government procedures LG CDF support to Local planning, budgeting and procurement process

LDF Phase 4 Bangladesh Nepal Bhutan Others ? Mo. U ? CG New pilot system Transfer according to terms of Mo. U Mainstream government fiscal transfer system LG CDF support to Local planning, budgeting and procurement process

LDF Phase 4 Bangladesh Nepal Bhutan Others ? Mo. U ? CG New pilot system Transfer according to terms of Mo. U Mainstream government fiscal transfer system LG CDF support to Local planning, budgeting and procurement process

What is Capital? 1) A factor of production in classical economic theory as defined by Marx, Smith and Ricardo 2) An accounting term in Public Finance theory and practice as defined by Premchand et al. 3) Cash or goods used to generate income as defined in many English language dictionaries 4) Large scale fiscal and financial flows as defined in national financial and banking legislation 5) A particularly useful and expendable resource endowment – e. g. human capital, political capital 6) The political or administrative centre of a territorial jurisdiction The UN’s Capital Development Fund works with the first five definitions… All these five are applicable in the diagram

On or Off • On budget in a parallel way (some SWAPs) • On budget approved by parliament • On treasury, or on ministry special account • On plan, or on thematic plan • On procurement? With what regulations • Efficiency argument vs accountability argument

Performance grants • Process related (v important point) • Size of grant is crucial • Assessment process must be sustainable

UNCDF Intervention Approach in Local Development Finance Country context Post conflit / Fragile phase Key points of the context Emerging phase: Decentralization start up • • • Consolidation phase: Ongoing decentralization, • • Maturity Phase or new approach? Added Value of a regional program • • • Priority Goals for UNCDF Weakness in basic services Weak role of government in financing LD, reliance on non-government service delivery Absent, weak or ineffective institutional frame for fiscal decentralization Emerging of a fiscal decentralization process Absence/ lack of social confidence Basic institutional and regulatory framework for fiscal decentralization is in place LGs have developed an initial capacity to deliver basic services Slowness in the fiscal decentralization process nevertheless debates on creation of a national policy and mechanisms • Political and institutional stability LGs have developed an intermediate capacity to deliver basic services and increasingly engage non-state actors Regulatory framework for decentralization in place and operational –technical and financial system supported by donors Strong policy dialog • • Stronger emphasis on better integration • and coordination between LGs for • development and service delivery Regional integration as a new topic for local • development Help for security and stability, especially in rural, landloocked and cross border areas Role of local investments Ongoing pilot experiences to raise awareness on • fiscal decentralization Support the emergence of a fiscal • decentralization policy • Build viable and stable local institutions with the view to stabilize the political situation through a bottom-up process Explore the ways of mobilizing private finance for basic service delivery and LD Consolidate and scaling up pilot experiences in order to build up the national institutional and regulatory system • Help LGs address new local development challenges (Gender, Food security) Put in place systems for LED and private sector finance mobilization • Harmonize the fiscal decentralization process Develop funding mechanism and tools for coordination at the regional level Place LD in the context of regionalization and globalization, including access to regional/international financial markets • • • Countries Build a participatory/ inclusive process (pre-mu) Define local-based investments Develop Basic Tools for Local Development Guinea-B. Sierra-L. Liberia, Yemen, South Sudan, Somalia DRC Build the institutional framework at local and national level Develop innovations in local development (scale/ nature of nat / local regulations) Guinea Mauritania Niger, Malawi, Ethiopia, Mozambique Develop and strengthen the national system Innovate with original LDF windows Unlock domestic capital for LD Benin, Senegal, Mali, B Faso, Rwanda, Uganda, Tanzania Build regional integration through local development Connect local investments to global processes and opportunities LOBI ACTA

The Core Approach : How do we use our Investment Mandate ? Country context Why? How ? Channel of Investment Post conflit / Fragile states • Build a participatory/ inclusive process (pre-mu) Level of investment Inputs Outputs • Direct payment ot suppliers • Simple and clear • Fiduciary Risk Assesment • Procurement guides or Guidelines • and/or to LGs by USD/Capita or • Developing the contractual UNCDF lump sum process • 1. 5 to 3 procurement for local • Define local-based • Build procurement investments Define contracts content • Planning tools • Investment Tools for Local • Institutionnal Development • Build the institutional framework at local and national level contracting procedures • Develop Basic participatory framework • Develop • Use national mechanism for local investment (including Treasury mechanism - PEM) innovations in local • Direct payment to LGs development (scale/ Consolidation phase • National code of • Simple and clear bank account • Sthrenghening the contractual process • Performance Grant System • Budget support to LGs, • Municipal code on • Based on past exp. (20% more) procurement • LG Assesment • Local Governements nature of invt / local Code regulations) • National Decentralization Policy Maturity phase • Make the national system strongest • Theasury mechanism • Basket fund • Innovate with • Allocation mechanism for local investment and/or thematics • LG Assesment • PEM Assesment • National Decentralization Policy for thematics (FS, LED, CC)

Example: Lo. CAL How to finance climate adaptation Capital Non - Capital Some air conditioners Teachers’ Salaries A new school building A road maintenance programme or staff training consultancy Will Climate Proofing come from Recurrent or Project? Recurrent (normally incremental changes in resource envelope) Project (fluctuation in resource envelope, specific approval process, activities of finite duration) Draft for discussion: DJ 03/2010

Some personal inspirations Greater London Plan, 1947, Abercrombie, London County Council Strategic Planning in Local Government, 1997, Leach and Collinge Good Government in the Tropics, 1997, Judith Tendler Development, Geography, and Economic Theory, 1997, Krugman Spaces of Global Capitalism: A Theory of Uneven Geographical Development, 2006, Harvey Imagined Communities: Reflections on the Origin and Spread of Nationalism, 2006, Anderson Notes on the Difficulty of Studying the State, 1977, Abrams Participation: The New Tyranny, 2001, Cooke and Kothari