Local Government

June 21, 2013

The Rising Risks of Local Government Finances in Africa

Posted by Camille Karamaga

Recent studies by IMF staff indicate that sub-national governments are a significant source of fiscal risk in European countries, especially since the global financial crisis. One reason is that local governments are responsible for many similar functions and financial transactions as central governments. Depending on the depth of devolution, local governments may borrow, manage off-budget enterprises and engage in opaque transactions with the central government and other sectors. In many cases, unfortunately, their accounting and reporting systems are weaker than those of central government, as are the arrangements for external oversight.

In sub-Saharan Africa (SSA), as decentralization gains momentum, similar issues are arising. Although the overall size of the local government sector is still relatively small—on average around 5-10 percent of the national budget—in some countries the figures are much higher, and are growing from year to year. In Kenya, for example, the new Constitution provides for a minimum allocation of 15 percent of the most recently audited domestic revenues to county governments, and the allocation for the current financial year is around 26 percent. In Tanzania budgetary allocations to local government authorities in FY 2010/11 and FY 2011/12 were 21.2 percent and 25.3 percent of the national budget, respectively. Across the region, the trend in local government spending is on the rise as more governments decide, for largely political reasons, that decentralization promotes both better service delivery and enhanced local accountability.

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January 11, 2013

New Guidance for Sub-National PEFA Assessments

Posted by Greg Horman

PEFA Logo

The PEFA Program earlier this week released new guidelines for applying the PEFA framework to sub-national governments.

Of the nearly 300 PEFA assessments carried out to-date, more than 70 have been at the sub-national level. Sub-national governments are highly diverse across the world in terms of administrative tradition, functions and responsibilities, the degree of discretion in running their operations independently of the central government, and the role of inter-governmental fiscal transfers. The populations, budgets, and economies of some sub-national entities are far larger than those of other entire countries. So PFM outcomes at the sub-national level matter.

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January 09, 2012

Latest Issue of International Journal of Governmental Financial Management published

Posted by Andy Wynne

The latest issue of the International Journal of Governmental Financial Management was recently published and is now available for free download from: www.icgfm.org/journal.htm

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October 17, 2011

Empowering Local Government in the Philippines Through Fiscal Decentralization

Posted by Chita Marzan

Today, some countries are still hesitant about implementing fiscal decentralization. This may be due to limited resources and inadequate PFM capacity at the local government level. Decentralization is not easy and the gestation period is indeed quite long. However, as developed countries have proven, the long wait and patience eventually pays off. What is required to make fiscal decentralization a success in developing countries?  I hope that this article will provide some insights in how low and lower middle income countries like the Philippines can implement fiscal decentralization.

It was a milestone in the history of governance in the Philippines when the first Local Government Code was passed in 1991. This law recognized that the essence of decentralization is to support local government units (LGUs)[1] in becoming more self-reliant, by giving them more powers and full autonomy in the delivery of basic services such as health, education, agriculture, environment and natural resources, local public works, etc. This Code also provided a new scheme of revenue and expenditure assignments which made the decentralization process possible.

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January 21, 2011

Gulliver Tied Down by the Lilliputians

Posted by Eric Brintet, Resident Advisor at the IMF’s Technical Assistance Center for Central Africa (AFRITAC Central), based in Libreville, Gabon

When you tell skeptics that you work as a Public Financial Management (PFM) advisor in Africa, you run the risk of an unflattering reaction: “It’s a waste of time! There is no political will for PFM reforms!” To be fair, they may have a point in many countries. The speed of implementation in the PFM area can often be disappointing, sometimes bringing the advisor close to despair (say when you are being stood up for the xth time in a row by the Minister you wanted to meet).

Yet, in these early days of 2011, I want to take up the daunting challenge of conveying a message of hope on this blog and give you food for (positive) thought. So let me use a few examples of how a bottom-up, technical approach can eventually bring the political Gulliver to adopt the best practices painstakingly sponsored by us, PFM Lilliputians.

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October 22, 2010

Evaluating Government Employment and Compensation of Employees

Posted by Izabela Karpowicz

Tnm1015[1] 1 
The technical manual TNM/10/15 describes quantitative criteria for evaluating government employment and compensation and offers some options for reform.Various indicators are used for analyzing government employment and compensation. These can be grouped into three categories—compensation of employees (i.e., “the wage bill”), employment, and wage levels.

Commonly used criteria for evaluating government compensation include: compensation as a share of GDP, of revenues, and of total spending. These ratios vary across regions, countries, different levels of government, and income levels. Another indicator, the ratio of government compensation to non-wage outlays, measures spending efficiency.

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August 25, 2010

Utah, Virginia, and Washington: Top Scorers in Government Performance in the United States

Posted by Mario Pessoa 

According to research sponsored by the Pew Charitable Trusts in partnership with Governing magazine, the states Utah, Virginia, and Washington have the best managed administrations in the US. They all scored A- in a recent study—on a scale from D to A.

The State of Utah scored the highest A- (A minus). Utah makes use of strategic planning combined with performance measurement, has good coordination between executive and legislature, keeps a low level of public debt, and maintains a sustainable pension fund for public employees. Overall, it provides a large amount of data on the performance of programs and agencies.

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August 04, 2010

Sustainability Reporting: Can the Triple Bottom Line Thrive in the Public Sector?

Posted by Dimitar Vlahov

It’s common knowledge that today’s global economy is facing multiple challenges and imbalances. From the recent financial crisis, to concerns about distribution of wealth, to the ever-more-dangerous clashes between economy and environment, there are many reasons to pause and examine the whole system. Some experts have suggested that a large chunk of this ill condition can be attributed to the same cause – the problem of bad performance measurement. Businesses and governments alike, the argument goes, have been employing short-sighted measures of success that do not account for all medium- and long-term consequences of their organizations’ activities. Therefore, they need to expand their reporting to include social and environmental indicators of performance, and not just financial ones. With a better warning system, many of the present-day issues could be mitigated or avoided altogether. This post serves as a basic introduction to this approach and its main applications to date.

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March 29, 2010

Optimal Structures for Ministries of Finance

Posted by Ian Lienert 

The need for internal restructuring of ministries of finances (MoFs) arises from time to time in the Fiscal Affairs Department’s (FAD) discussions with country authorities. Existing structures may no longer be conducive for attaining the desired outcomes of the ministry in the most effective manner. Ministerial restructuring needs a high-level political decision. For mergers of two ministries (e.g., planning and finance) one minister of the Cabinet of Ministers loses his post. When a ministry is split into two ministries, a new minister may be added to the Cabinet. Such mergers or splitting of the MoF are not common. It is more frequent for the MoF to undergo an internal restructuring, to “modernize” the ministry or rationalize its functions. For example, new business processes may have been developed (MTEF, performance budgeting, modernized treasury management, etc.) and now need to be embedded in the organizational structure.

Are there any guidelines that could be used for restructuring a MoF?  Clearly a starting point is to examine the generic functions of any MoF. The attached listing of core and non-core functions of a MoF could be a starting point for national authorities that may be considering an organizational restructuring of its MoF. I would like to solicit your comments on this proposal.

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March 16, 2010

China’s Local Government Cash Management – Regulation or Centralization?

Posted by Holger van Eden 

Not all governments around the world are anxiously looking at their empty state treasury coffers. The Chinese central and local governments have accumulated large cash reserves over the past decade. In part these accumulations represent continued under-execution of the budget over a number of years, a quite common phenomenon in the developing world. These reserves, however, also reflect the success in setting up Treasury Single Account (TSA) structures by central, provincial, and larger city governments. The liquidity that in the past would have accumulated in line ministry and agency commercial bank accounts at various levels of government–China has 5 distinct layers of government–has in part been brought back into TSA accounts held at the People’s Bank of China (PBoC).

Local government reserves in China represent an estimated 3-4 percent of GDP. This represents a sizable amount by any international standard and raises the question of how these resources should be managed: to what extent should treasury management power of local government be centralized? What sort of autonomy in financial investment management should be granted to local government to maximize financial return while preserving investment security, etc.?

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March 01, 2010

Overview of the Italian Law on Fiscal Federalism

Posted by Maria Gabriella Briotti and Maria Cristina Mercuri1 

Last May, the Italian Parliament approved a framework law on fiscal federalism. The law represents a crucial step towards the implementation of the reformed Title V of the Italian Constitution, which transfers increasing legislative authorities and administrative functions to sub-national governments. As such, the law has to be seen as the continuation of a long process of fiscal devolution started in the mid-1990s aimed at correcting gradually the existing vertical imbalance across levels of governments. The next step will be the adoption, by May 2011, of several legislative decrees that will have to define the operational content and practical application of the principles stated in the law.

Overview

In May 2009, eight years after the reform of Title V of the Constitution (Constitutional Law n. 3/2001), the Italian Parliament approved the framework law on fiscal federalism (Legge Delega n. 42/2009)2. The scope is to enhance tax autonomy and fiscal responsibilities of sub-national governments (Regions, Provinces, Municipalities, and selected Metropolitan area), notwithstanding a full guarantee of solidarity and cohesion principles, while also promoting public administration efficiency and budget consolidation processes.

Operational content and practical application of the principles established by the frame law will have to be defined by subsequent legislative decrees to be adopted by parliament within a 24-month period from the approval of the law (a 12-month deadline is instead set to harmonize the accounting systems across regions). As building blocks of the entire fiscal system, the executing legislative decrees will have to define in detail spending competencies and taxes to be devolved to local administrations, which services will be provided uniformly on the territory, how to finance equalization funds, and the amount of local expenditure to be financed through the equalization funds. The reform must be completed and enter into effect in five years since the frame law approval, although a somewhat longer period might be allowed to individual regions, to take into account special circumstances.

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February 01, 2008

Fiscal Double Whammy: Combination of Balanced-Budget Rule and Economic Slowdown Forcing U.S. States to Make Tough Fiscal Decisions

Posted by Michel Lazare

A majority of US states are facing a difficult fiscal situation according to the survey made by the Center on Budget and Policy Priorities (CBPP).

In a January 28, 2008 revision of a survey of states fiscal outlook (prepared by Elizabeth C. McNichol and Iris J. Lav ), CBPP indicates that "19 states face a total budget shortfall of at least $32 billion in fiscal year 2009; 9 others expect budget problems." These dire projections were made by the states themselves and were aggregated by CBPP.

Because they have passed a fiscal rule, which forces the state legislators to adopt a balanced budget, "the vast majority of states cannot simply run a deficit or borrow to cover their operating expenditures."  They have to resort to fiscal retrenchment--not a very pleasant perspective at times when the US economy is noticeably slowing down--, which could in turn negatively affect economic growth prospects (procyclical effects).

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December 17, 2007

Rebuilding Fiscal Institutions in a Post-conflict Setting

Developing Economic Stabilization

Posted by Bill Dorotinsky

 "The reconstruction of fiscal institutions can contribute to macroeconomic stabilisation and create a conducive environment for further institution building." That's the central idea of a recent note on "Rebuilding Fiscal Institutions in Post-Conflict Settings" by Sanjeev Gupta, Senior Adviser in the IMF's Fiscal Affairs Division, published in Capacity.org (Issue 32, December 2007) -- the on-line publication of the European Centre for Development Policy Management (ECDPM), SNV Netherlands Development Organisation, and the United Nations Development Programme (UNDP). The publication, including this article, is available in English, French, and Spanish.

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December 12, 2007

Automating Public Financial Management Systems for Results

Posted by Bill Dorotinsky

Over the past few decades, governments and development agencies alike have invested enormous financial and human resources into automating public financial management (PFM) systems, and often the results have been less than hoped. Governments have had difficulty implementing systems, and not achieved desired functionality. And development partners have invested large sums of money, only to find systems delayed in implementation, having limited impact, and often with real challenges to the sustainability of the systems. On December 2-4, 2007, the International Consortium of Governmental Financial Management (ICGFM) held a two-day workshop entitled "Use of Financial Management Information Systems (FMIS) to Improve Financial Management and Accountability in the Public Sector".  While the conference title and topic might cause eyes to glaze over with visions of technical issues, the conference was a useful glimpse into current thinking on PFM system automation, and full of practical advice to those concerned with PFM system automation.

Conference presentations from government authorities, international organizations, and consultants covered topics such as how FMIS fits within the over-all PFM reform agenda, planning for FMIS development, FMIS design components, IT alternatives, project management, procurement, and capacity building. The conference program and all the presentations made are available on-line at the ICGFM website under Winter Conference.

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October 11, 2007

Public Investment: Good Project Management is an Issue of ...Capital Importance

"Unexpected changes to payment schedules related to capital projects can create significant difficulties for finance officers responsible for cash management" remarks Steven R. Kreklow (*) in his short article ("Capital Project Cash Flow Management") of the August 2007 issue of the Government Finance Review, the membership magazine of the US-based Government Finance Officers Association.

This adverse impact on cash management and more generally budget execution can be mitigated by good budget and project management techniques described in Steven R. Krelow's article.

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