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Decentralisation

Decentralisation. An Action Plan from a PEM perspective. Plan. Introduction A. Short Term (during 2000 for the 2001 budget) policy decisions on aspects of expenditure allocation treatment of transferred responsibilities general aligning of expectations info to local governments

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Decentralisation

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  1. Decentralisation An Action Plan from a PEM perspective

  2. Plan Introduction A. Short Term (during 2000 for the 2001 budget) • policy decisions on aspects of expenditure allocation • treatment of transferred responsibilities • general aligning of expectations • info to local governments B. Medium Term (2001 and beyond) • budget reform • fiscal discipline • allocative efficiency • operational efficiency • central control • external audit Decentralisation: Action Plan

  3. Introduction • Importance • Probably biggest transfer of staff ever in the world • Covers nearly all the major government functions and over half of government spending • Expectations are high for more accountable, more efficient and more effective spending Decentralisation: Action Plan

  4. Introduction: cont. • Unusual • Functions virtually all transferred to Dati II, not provinces • Breadth of functions • No positive list • Big bang approach not transitional period • Difficulties • Political pressures for separatism • A time of fiscal tightness • Timetable for preparation constrained • Constraining decisions on revenue sharing Decentralisation: Action Plan

  5. A1. Determine treatment of Shared Resources Options • Define fiscal capacity to include all income sources. • Define fiscal capacity to exclude shared income sources. • Define fiscal capacity to include a proportion (say, half) of shared resources. Ultimately a political decision informed by modelling results Decentralisation: Action Plan

  6. A2. Determine Policy on “Losers” Issues • what is the benchmark for current spending • any allowance made for inflation • applies to both Dati I and Dati II or just Dati II? We suggest definition must allow for • All staff inflation • All responsibilities i.e. current plus new • Possibly some permitted loss against this figure e.g. 5% Decentralisation: Action Plan

  7. A3. Determine aggregate DAU and model DAU (plus shared resources) should cover • current routine responsibilities • current development responsibilities • allow policy on equalisation and losers to be met • be consistent with required law that 2.5 % of funds go to provinces • be consistent with minimum 25% rule in total Decentralisation: Action Plan

  8. A4. Set responsibilities to be met from DAU • if DAU at 25% is insufficient:- • need extra DAU or • change policy on equalisation or losers • if there are surplus funds:- • transferred proportion of APBN staff (assume 10%?) • transfer all deconcentrated non-staff responsibilities • extra development funds we suggest transferring non-salary routine costs • gives budget certainty • gives some real freedom to Dati II • allows managed transfer of salary responsibilities Decentralisation: Action Plan

  9. A5. Separate financial and physical transfers Options 1. Hold back all transfers of routine funds until 2002. 2. Hold back only staff-related costs until 2002. 3. Transfer funds during 2001 as blocks of transferred staff and responsibilities are identified (either by region or by function). We suggest option 2 • Allows budget certainty • Allows time for managing staff transfers whilst retaining certainty over salary payments Decentralisation: Action Plan

  10. A6: General - Aligning Expectations • Align expectations with reality for 2001 • Limited opportunities for resource-reallocation • Growth in local resources will be small • No time to plan resource-use or reorganise? • The benefits of decentralisation will not be experienced much in 2001 • This is a de facto transition period and real benefits will take 4-5 years Decentralisation: Action Plan

  11. A7: Better Info to Daerah • Issue copies of draft PP immediately • issue guidance figures on transfers quickly Decentralisation: Action Plan

  12. B1: Budget Reform Processes Treat 2001 as a year for testing reforms to budget preparation at daerah level • e.g. budget classification and multiyear budget reforms • supported by central team/TA • aimed at preparation of 2002 budget Refocus the aid mobilisation and resource allocation role of Bappenas • consistent with a unified resource allocation and budget planning process • a multiyear budget framework Decentralisation: Action Plan

  13. B2: Budget Reform Processes cont. Redefine processes of external assistance mobilisation (consistent with decentralisation) • direct loans to local governments • voluntary consortia of Dati II facilitated by provinces • still need some central involvement if a central guarantee Decentralisation: Action Plan

  14. B3: Budget Reform Processes cont. Complete analysis of future potential development budget flows • over three year period • disaggregate the projected new spending between central and daerah level • distinguish between rupiah and foreign financing • Determine discretionary spending gap available for allocation between central and daerah; Decentralisation: Action Plan

  15. B4: Budget Reform Processes cont. Monitor local project delivery arrangements for central controlled projects • Monitor the performance of implementation of central financed and managed projects • define scope for further redesign to focus on decentralised delivery • link this assessment to results of technical assistance in daerah budget reform processes; Decentralisation: Action Plan

  16. B5: Fiscal Discipline • Dati II lack control over revenue sources • switch PBB to local tax & allow local tariff-setting • further sources? • Shift provincial sources to Dati II? • Local Governments need help in • early notification of provisional grant figures • certainty of dates of cash transfers • monthly/quarterly • in advance/in arrears • Better accountability of DPRD • public hearings • involve NGOs • transparent budget/reporting process Decentralisation: Action Plan

  17. B6: Allocative Efficiency • Reform staff remuneration • switch funding to basic wages from honoraria • increase basic wages • reconsider differentials • Reform Development/Routine budget split • promote integrated decisions on investments, running costs, maintenance etc. • Develop local capacity for… • inter-sectoral planning • programme evaluation • Need guidelines on Dati II allocations to desa Decentralisation: Action Plan

  18. B7: Operational Efficiency • Review procurement • need sufficient competition • Develop performance indicators/benchmarking systems • to be mediated through auditors? Decentralisation: Action Plan

  19. B8: Central Control Issues Resolve responsibilities for control & monitoring • Sectoral ministries responsible for sector specific standards • But do they have field staff, skills • What controls on competing standards, priorities • Central ministry (DDN, Meneg OTDA, Dep Keu?) responsible for general administrative control • But capacity? • Split of responsibilities • Mechanisms for feedback unclear Decentralisation: Action Plan

  20. B9: Central Control cont. Suggestions • Specify indicators not standards and publish results • Use them to identify good performance • emphasise performance audit rather than detailed sectoral control Decentralisation: Action Plan

  21. B10: External Audit • Continuance of multiple agencies • BPK/BPKP • Sectoral ministries • Auditor appointed by DPRD • IrWilProp • new anti-corruption agency Decentralisation: Action Plan

  22. B11: External Audit: cont. • Need clarity of mandates • Need public reporting • External auditor should • be independent of local executive, DPRD and centre • Have capacity in performance auditing • develop comparative performance studies, best practice etc. • Have local government as their priority This suggests:- • no role for BPK/BPKP, IrWilProp and DPRD-appointed auditors • Creating new specialist agency Decentralisation: Action Plan

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