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Presented at the World Bank Washington, DC January, 24 2007

Fiscal Decentralization Policy Design in a Post-Conflict Country: The Case of Rwanda S ylvain H. Boko Wake Forest University. Presented at the World Bank Washington, DC January, 24 2007. Community participation Local decision making power Local autonomy Efficiency Sustainable development

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Presented at the World Bank Washington, DC January, 24 2007

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  1. Fiscal Decentralization Policy Design in a Post-Conflict Country: The Case of Rwanda Sylvain H. BokoWake Forest University Presented at the World Bank Washington, DCJanuary, 24 2007

  2. Community participation Local decision making power Local autonomy Efficiency Sustainable development Poverty reduction Vision and Foundation of Decentralization (GoR)

  3. Table 2.1: New Roles under Decentralised Service delivery

  4. MISSION #1 (Nov-Dec 05) • Drafting a new GoR Fiscal Decentralization Policy • Review and Update the GoR Revenue Sources Law • Planning for Implementation of FD Policy

  5. Existing Problems • Weak institutional capacity at all levels • Uneven local resource mobilization capacity • Weak coordination • Inadequate funding

  6. Key Objectives • Create an efficient and sustainable resource mobilization base for local communities • Provide local Districts with an adequate and equitable level of resources and revenue mobilization powers (Finance Follows Function) • Strengthen planning and management capacity at the local level through a participative approach • Foster local Districts’ financial autonomy in the long run

  7. Some Strategies • Incremental revenue generation based on local economic growth • Diversification of sources of revenue • Development and application of equalization formulae for transfers for Block and Earmarked grants based on local socio-economic needs and performance • Institutionalization of a system of checks-and-balances through the involvement of grassroots organizations in the budgetary process • Institution of a code of conduct at all levels • Development of Information Education and Communication (IEC) mechanisms for an enhanced community participation

  8. Review the Source of Revenue for Districts Law Empowerment of local Districts • Delegation of new resource mobilization powers • Definition of new sources of revenue (i.e., notary fees) • Broadening of local tax base (% of income tax or VAT returned to local Districts) • Integrating sectoral decentralization in local and central fiscal and financial decision making • Clear definition of intergovernmental fiscal and financial relations • Strengthening of tax collection procedures (Privatization, if necessary) • Strengthening of fiscal and financial management code of conduct • Focus on a participatory approach in all phases of FD decision making and implementation process.

  9. Implementation plan

  10. MISSION #2 (March 06) • Designing Equalization Formula for Intergovernmental Transfers

  11. Why Transfer Grants? • Transfer grants are important component government menu of public financing instruments. • Transfer grants usually form the initial resource base for the decentralized local communities. • By compensating Districts with smaller fiscal capacity, equalization transfers are used to reduce the horizontal fiscal imbalance, and the regional disparities and inequities that can exist in a country. • Equalization transfers can be used to diffuse regionalism, separatism, and other political forces. • Through equalization grants, the GOR can pursue complementary objectives, such as to stimulate fiscal effort for example.

  12. Why is a new Formula Needed? • Components of the old Equalization Formula: • Population • Area • Poverty (based on disparities in tax revenues) • Performance (based on submission of administrative reports) • Disadvantages of the old Formula • Not based on Districts service demands and expenditures needs

  13. Principles of Equalization Formula • Vertical balance • Horizontal balance • Stability • Predictability • Fairness • Transparency • Simplicity • Political-neutrality

  14. Elements of the new Equalization Formula • Based on: • Districts Service Demands and Expenditures Needs, which include: • Education Services (Pupils per teacher/#of Schools) • Health Services (Patients per Doctor/# of facilities) • Administrative Cost (Area) • Service Pressure (Density) • Number of Sectors • Fiscal Responsiveness Factor • Common Factor

  15. Challenges • Language • Conflicting agendas among “development partners” • Conflicting agendas among government Ministries • Representing other stakeholders’ viewpoints

  16. Results • Policy and laws adopted by the cabinet in October ’05.

  17. DECENTRALIZATION IN POST-CONFLICT COUNTRIES • Decentralization (and generally democratization) as a means to prevent violent conflicts for secession • Paul Collier (2004) • Ehrke (1994) • Alesina and Spolaore (1997, and 2003) • Panizza (1998)

  18. THANK YOU!

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