Mr. Kenneth Mugambe Director Budget Training of Local Government Officials

1. Overview of Reform of Inter-governmental transfers to Local Governments Mr. Kenneth Mugambe Director Budget Training of Local Government Officials Ministry of Finance, Planning and Economic Developments

2. Structure of the presentation • Context and Reform Objectives • Consolidating and Reforming Transfers • Performance and Accountability for expenditures and results • Way Forward

3. 1. Context

4. Background • The 2001 Fiscal Decentralisation Strategy had the following key objectives: • Strengthen the process of decentralization in Uganda through increasing local governments’ autonomy; • Widen local participation in decision making; and • Streamlining of fiscal transfer modalities to local governments in order to increase the efficiency and effectiveness geared towards achieving PEAP goals within a transparent and accountable framework • However, implementation was partial. • In 2012 LGFC review and 2013 WB study further raised issues on the impact of the transfer system.

5. Context: Key issues

6. Context: Discretion and Fragmentation

7. Context: Declining Real Values of Transfers % fall in real per capita of selected transfers from peak levels by 2015/16 NB – wage allocations have increased steadily in real per capita terms

8. North East West Central Context: Disparities in Funding and Outcomes Variations in numeracy (P3) across LGs Variations in total per capita transfers across LGs From Shs 34,661 (Wakiso) to 151,932 (Bukwo District) and 260,136 (Soroti MC) From 29% in Amuria District to 99% in Kalangala District

9. Reform Objectives Building on the FDS, the overall objectives to guide the process of reforming transfers: • To allow existing and new national policies to be financed via the transfer system, at the same time avoiding future fragmentation of transfers and increasing discretion to ensure services are delivered in line with local needs; • To shift the focus away fragmented input-based conditions towards accountability for allocation decisions, expenditures and results; • To use the transfer system to provide incentives to improve institutional and service delivery performance; and • To restore adequacy and equity in allocation of funds for infrastructure and service delivery. Reform has been coordinated by MoFPED, in collaboration and with positive engagement from LGFC, MoLG and OPM as well as line ministries and local governments.

10. Four Phases The first two stages have begun… 1. Interim Consolidation of Local Government Transfers • Collapsing the number of Sector Grants form 53 in FY 2013/14 to 13 in 2015/16 • Interim Grant Conditions for Sectoral Transfers prepared 2. Reform to Transfers for 2016/17 • Consolidating and redesigning discretionary transfers • Revising the allocation formulae and principles for grants to LGs • Redesign of sector transfers and establishing budgeting requirements The next phases will begin in October… 3. Reforming frameworks for accountability and strengthening incentives • Strengthening mechanisms for transparent and accountable grant management • Introducing performance conditionality to lever institutional and service delivery improvements from 17/18 onwards 4. Fiscal Decentralisation Architecture & Share of Transfers (LGFC/ FINMAP) • Reviewing LG mandates and estimating the cost of adequately financing those mandates relative to the overall budget. • Reviewing the overall legal and policy framework for local government revenues and expenditures and recommending changes, taking

11. 3. Consolidating and Reforming Transfers

12. New structure of conditional grants * Discretionary Development Equalisation Grant to be introduced from 2016/17 onwards.

13. Currently a district or municipality may get three or more discretionary grants it can use for development e.g. USMID, LGMSD, PRDP, Equalisation Grant From 2016/17 an LG will only get only one discretionary development equalisation grant from one window The grants would be financed from a merger of the PRDP allocation to sectors and USMID, LGMSD; the LRDP; and the local development grant (LGMSD) This would be the vehicle for financing all regional programmes in future. The grants will have a unified formula The global allocation to PRDP and LRDP districts would not be reduced i.e. overall additionality of the PRDP and LRDP would be maintained. Need to uplift funding of other districts to allow uniform application of equalisation formula. Discretionary Development Equalisation Grant 2016/17 BFP – Per Capita District DDEG Alloc West Central East North

14. Principles for Allocation Formulae • 4 Key Principles • Formulae should be simple and transparent • Allocations should be equitable within the resources available • Variables should be exogenous to influence from local governments and not provide a disincentive to improve service delivery • Variables should support predictable and politically viable allocations • Grants also linked to national policy objectives • Formulae have been prepared using the Online Transfer Information Systrem • www.budget.go.ug/fiscal_transfers

15. Establishment of Sector Budget Requirements Shift from earmarking and input conditions to establishment sector LG budget requirements linked to policy objectives Allow flexibility in allocations provided requirements are met These are set out in Sector Grant and Budget Guidelines, which include Budget Requirement Assessment and Compliance Tables. LG adherence will be assessed independently, to ascertain whether they adhered to budget requirements. These results of the assessment will be validated by sectors and used to inform whether the PS/ST signs performance contract Sector Grant and Budget Guidelines have been prepared which set out The Purpose of Transfers The Allocation Formula Budget Requirements. Budget Requirement Assessment and Compliance Tables Shift from Earmarking by Grant to Grant and Budget Requirements

16. 4. Performance Incentives and Accountability for results

17. Linking Transfers to Performance • Linking grants to local government performance has the potential to provide incentives to improve service delivery. • Performance assessments at three levels will aim to attain three mutually reinforcing objectives • Enhance adherence to core budget and accountability requirements • Strengthen functioning of LG processes and systems; and • Incentivize attainment of service delivery results • The performance assessment systems will be customised to rural and urban areas • Applying the same overall principles • These assessments will, in different ways, impact on the appointment of accounting officers, the signing of performance contracts and the size of transfers themselves. • An overview of the overall structure of the performance based grant system and target grants is summarised in the next two slides

18. Budgets Linked to National & Local Priorities + Stronger Accountability Linking Transfers to Performance Improved service delivery outcomes Appointment of Acc. Officers & release of grants linked to: Provide incentives for: Stronger LG Management of Service Delivery and Development Projects Adherence to Core Budget and Accountability requirements Which deliver: The size of the DDEG & sector development grants linked to: Better Results in Schools and Health Facilities Functionality of X-cutting & Sector LG Processes & Systems The size of transfers to schools and health facilities linked to: Service Provider Results

19. Strengthening Accountability, Monitoring and Follow up • Comprehensive, Combined LG Performance information: • LG Service delivery outcomes across sectors • Results of LG institutional performance assessments (x cutting, sector) • Individual Service Provider Results, Inputs & Funding • Publicly available on budget.go.ug • Stronger, better targeted monitoring and supervision • Central monitoring better targeted based on information of relative LG performance • Systems for LGs to under-performing service providers support service providers • Clear minimum requirements for what Central and LGs should be monitoring and supervising and how often • Strengthened, Systematic Follow Up • Structured process for ensuring follow on feedback – up coordinated by MoFPED (ticketing system) • Establish Accountability Requirements linked to Preformance Contracts • Areas such as accounting, reporting, audit and monitoring follow up. • Adherence to the PFMA 2015 • Sanctions for Accounting Officers for not complying. • Adherence to budget and accountability requirements specified in accounting officers’ performance contracts • Annual assessment of accounting officers and sector departments compliance with budget, and accountability requirements (reporting, follow up, audit etc). (level 1) • Mechanisms for following up on heads of department who don’t comply with sector requirements.

20. Budget Transparency Initiative • LGs are encouraged to use the Budget Website and hotline. Specifically: • LGs are required to respond to feedback posted on the budget website or via the budget hotline within two weeks • In addition LGs will be required to pose their quarterly monitoring reports on the website in 2016/17. • All LGs will be given refresher training at this workshop to ensure: • Login and respond to feedback • Post documents and news items • Compliance will be assessed as part of the assessment of accountability and budget requirements

21. 6. Way Forward

22. Current Status • Consultations were held at • A retreat in Jinja in August 2015 • LGBFP workshops • LGFC negotiations with sector ministries • Two PS level meetings in January and February • Continuous consultation with sector ministries, agencies and other central and local actors • Sector Grant and Budget Information Guidelines have been prepared setting out grant objectives, allocation formulae and budget requirements. • These include budget Requirement Assessment Compliance Tables • Simulations for the introduction of the Allocation Formulae have been programmed into a new automated Online Transfer Information Management System (OTIMS) • OTIMS has automated the production of IPFs, ensuring rules-based allocations • IPFs based on the first BCC MTEF allocations and new formula were distributed to Local Governments along with Guidelines and Grant and Budget Information Papers in October • These involved no increases to grant allocations in 16/17, and do not involve full restoration of real allocations over the medium term. The losses are significant. • Grant and Budget Information Incorporated in the National Budget Framework Paper • Sector Guidelines and IPFs in the process of being finalised in line with the second budget call • Sectors have validated the grant redesign, allocation formulae and budget requirements, and will issue guidelines shortly

23. Next steps • LGs Prepare Draft Budgets and Performance Contracts • In line with IPFs issued by MoFPED and the Sector Grant and Budget Guidelines issued by line Ministries. • These must be completed by the 15thMarch. • Finalise common lists of service delivery units, used by sectors, MoLG, MoFPED: • Need consistency across OBT/PBS, MIS, OTIMS UBOS etc • Line Ministries provide lists to LGs at LG training workshop for validation/updating • LGs validate and complete lists alongside draft budgets by mid March 2015. • Line ministries approve lists, which are used in final budgets and as the basis of releases in 2016/17 • Assessment of Budget and Accountability Requirements (March / April) • This will take place in March/April 2016, and feedback will be provided to LGs on results • It will feeding into appointment of accounting officers and signing of performance contracts • LGs finalise their budget performance contracts • Taking into account feedback from assessment

24. Thank You Any Questions?