Diagnosing LG Budgetary Processes and Institutions

1. Diagnosing LG Budgetary Processes and Institutions Sudharshan Canagarajah

2. Background • Role of LG budget and institutions is very important and most neglected area for addressing poverty and growth issues • Bank was concerned about central government budget/institutions in 1990s • Now it is clear without LG reforms - service delivery, poverty reduction and growth are difficult • There is increasing AAA on LG; PERs are discussing them; HIPC AAP looks at this • Today many LG projects addressing capacity/service delivery challenges

3. Background to Uganda LG • LG played an important role in Uganda development process for more than 50 years - layers LC1-LC5 • LGs received 18% in 1997/8 as transfers from CG; 2003/04 - 39% (approx US$400 million) • Transfers account for 87% LG revenue • Conditional grants guiding national priorities at LG level 70% in 1997/8 to 80% 2003/04 • Today 37 separate conditional grants (earlier 70) • Number of districts 45 to 56 in last four years

4. Uganda PFM/CIFA • Sound PFM at CG/LG is important to all stakeholders – taxpayers, MPs, councillors, private sector, beneficiaries, donors and govt. • Uganda’s CIFA report was a response to this need - budgetary, accountability and transparency • Provides a first step towards a single standard assessment of public financial magt for all levels of govt in Uganda. • Common Assessment of fiduciary risks

5. Fiduciary Risk • Public expenditure unaccounted for. • Funds used not for intended purposes. • Expenditures far short of value-for-money LGIFA Objective Carry out an assessment of public financial management systems and practices in Ugandan Local Government, including establishing: Progress made; and Priorities for the future Benchmarked financial management in: Apac, Jinja, Kabale and Tororo Districts, and Masaka Municipality

6. The Contradiction in Uganda’s Fiscal Decentralisation Process • Large increases in resources to local governments enabling large scale delivery of services through many earmarked conditional grants • Earmarking of resources has reduced local choice the key rationale for strengthening local accountability and responsiveness of service to local need but vs Central Local Fiduciary Assurance

7. Integrated Assessment • High Level Fiduciary Concerns • Realism of the Budget • Financial Management Capacity • Political & Managerial Environment (not benchmarked) • Corruption (not benchmarked) • Stages in the budget cycle • Linking Policies, Plans and Budgets • Raising Revenues, Deploying Revenues and Carrying out Activities • Including Procurement • Reporting on the Use of Resources and Achievement of Results • Holding LGs to Account for their Performance

8. Overview of Benchmarking Results

9. High Level Fiduciary Concerns • Assurances • Strong PFM systems enable services to be delivered largely as intended in both strong and weak LGs • Risks • Unrealistic LG Budgets weak tools for articulating and implementing LG objectives • Weak political understanding of decisions made budget cycle means budgets less responsive to local priorities • Accountability of LGs to the public remains weak • Poor political and managerial relations means that weak local governments remain weak • Corruption continues to undermine service provision • Inadequate technical support undermines new initiatives

10. High Level Budget Outturns • Currently budgets are unrealistic and weak tools for implementing Local Government Objectives • Big differences in the realism across LGs • Unreliability biggest at sector level • Budget Outturns were Benchmarked, only 40% met

11. Planning and Budgeting • Assurances • There are adequate technical planning and budgeting skills to deliver a coherent budget process within LGs • Improved policies and guidelines being developed which address many of the key weaknesses • Risks • Development Plans may remain unrealistic, and inadequately linked to the BFP and budget • Budgets may continue to be inadequate tools for implementing local government policies, due to unrealism & the lack of contestability over resources. • Plans and budgets may remain weak decision making tools for council, as they may be continued to be presented as a technical not political documents

12. Raising Revenue & Deploying Resources • Assurance • Systems enable LGs to deploy resources and undertake activities and deliver services with an increasing degree of financial control • Risks • Low local revenues will continue to undermine autonomy and local accountability to citizens • Procurement processes remain inefficient due to inadequate technical expertise & political interference. • Execution is unpredictable for sectors, due to weak cash, commitment control & procurement planning. • Internal audit’s involvement in pre-audit undermines its ability to carry out objective audits of LG systems, • LCs appear able to alter planned activities during FY

13. Reporting on Use of Resources • Assurance • There are regular flows of information on finances and performance during the financial year • Risks • The emphasis or reporting remains vertical which undermines the importance of budgets & workplans • Reports will continue to be presented in technical way inaccessible to the public and politicians • Without annual performance report, the tools for reviewing LG performance against plans.are limited • Monitoring will remain ad-hoc and poorly focused • The use of user committees and subcounties in monitoring service provision remains un-exploited, and thus grassroots accountability will remain weak.

14. Holding LGs to Account • Assurance • Vertical accountability systems, such as performance assessments, audits, and the LGAC do provide central government with some fiduciary assurance • Risks • If LGs do not become more actively transparent institutions, then there is likely to remain little demand for local accountability from local governments • Without more structured performance assessments of services, there will remain significant variations in performance, and little incentive to improve • If councils remain inactive in reviewing performance, services can’t be locally accountable & responsive • If subcounty accounts are un-audited, then the risk of misspending resources at lower levels is increased

15. Key findings • Low local revenues undermine autonomy. • Development plans weakly linked to BFP/budget • Budget execution is unpredictable for sectors and LGs • Emphasis of reporting remains vertical • Monitoring remains ad hoc and poorly focused • Procurement process remains inefficient • Heterogeneity in LG performance