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Unconditional Grant

This presentation outlines the issues related to the unconditional grant guideline and how they have been resolved. It also provides an overview of the 2017/18 budget guidelines, policy priorities, allocation formulae, and other sectoral issues. The presentation is conducted by the Ministry of Local Government and the Local Government Finance Commission.

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Unconditional Grant

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  1. Unconditional Grant Local Government Finance Commission

  2. Presentation Outline • Outline of issues and how they have been resolved • Overview of the 2017/18 Budget Guidelines • Policy priorities/sector objectives • Structure and Purpose of Sector Transfers • Allocation Formulae • Budget Requirements • Other Sectoral Issues • Ministry of Local Government • Local Government Finance Commission UNCONDITIONAL GRANT GUIDELINE

  3. Overview of the Issues and How they were addressed UNCONDITIONAL GRANT GUIDELINE

  4. Overview of the Issues and How they were addressed UNCONDITIONAL GRANT GUIDELINE

  5. Overview of the 2017/18 Grant Information and Budget Requirements • Policy priorities/sector objectives • Structure and Purpose of Sector Transfers • Allocation Formulae • Budget Requirements UNCONDITIONAL GRANT GUIDELINE

  6. Policy Priorities • A number of priorities were set out in the NDP to which the UCG is contributing, including: • Strengthen Public Financial Management, through the introduction of the IFMS, Performance Based Budgeting and the reform of fiscal transfers. • Increase public demand for accountability and strengthen compliance with accountability rules. • Improve citizen participation and contribution in promoting rule of law, transparency and accountability in the provision of services to achieve equitable and sustainable development. • Improve coordination, and harmonization of policy, planning, budgeting, and M&E at National and Local Government levels. • Improve public service management, operational structures and systems for effective and efficient service delivery. • Enhancing the performance of the public sector and strengthening service delivery. • The Decentralisation of the Payroll, the Human Resources Function through the IPPS. UNCONDITIONAL GRANT GUIDELINE

  7. Structure and Purpose of the Unconditional Grant UNCONDITIONAL GRANT GUIDELINE

  8. Structure and Purpose of PSM Transfers NB: These allocations are not formula based UNCONDITIONAL GRANT GUIDELINE

  9. Formula for Un-conditional Grant Wage AllocationThe formula for UCG wage is in the process of being developed. The IPFs are based on the existing wage bill from MoPS plus approved recruitment by the Ministry of Public service. UNCONDITIONAL GRANT GUIDELINE

  10. Formula for Unconditional Grant Non- Wage Recurrent UNCONDITIONAL GRANT GUIDELINE

  11. Public Sector Management Grant Allocations under thePublic Sector Management grantwould remain ad hoc, and not formula based. The support services grant is currently comprised of: • Pension and gratuity • Urban Ad-hoc • Rural Ad-hoc UNCONDITIONAL GRANT GUIDELINE

  12. Unconditional Grant Allocation Formulae • The above formulae will be phased in over the medium term. This formula itself and the medium term allocations and phase in plan for the allocation formulae is available on the budget website: www.budget.go.ug/fiscal_transfers. An individual local government’s allocation formula can also be found on the site. UNCONDITIONAL GRANT GUIDELINE

  13. Overview of Budget Requirements UNCONDITIONAL GRANT GUIDELINE

  14. Overview of Budget Requirements UNCONDITIONAL GRANT GUIDELINE

  15. Overview of Budget Requirements (cont.) UNCONDITIONAL GRANT GUIDELINE

  16. Other Sector Issues UNCONDITIONAL GRANT GUIDELINE

  17. LGFC PRIORITIES BEING IMPLEMENTEDFY2013/14 - FY2017/18 • Review of the Grants Allocation Formulae; • Designing a Fiscal Decentralisation Architecture (FDA); • Determining LG share (grants transfers) out of the national budget; • Review of conditional grants negotiation process; • Establishing and Rolling out of the local revenue database for local revenue enhancement in LGs; • Review of the relevant legislation on local revenue management. UNCONDITIONAL GRANT GUIDELINE

  18. Review of the Grants Allocation Formulae • The Formulae were revised thus some LGs gained more funds and others ‘lost’ some funds. • Several mitigation measures will, however, be implemented in the medium term to re-instate the real value of the transfers and increase funding to LGs in line with the new formulae. • There was also a reduction in the earmarking of grants as well as the replacement of grant conditions with sector budget requirements. The new formulae will be phased over the medium term UNCONDITIONAL GRANT GUIDELINE

  19. Negotiations on Conditional Grants • Article 193(3) of the Constitution requires negotiations between local governments and sector ministries managing conditional grant funded programs to take place with a view of coming up with a transparent and effective system of implementing programs funded using conditional grants. • For FY 2017/18, the Commission had scheduled to conduct the negotiations in August 2016 but has not been able because of resource constraint in the first quarter. • It is therefore planned that resources being available, the Commission will be conducting and facilitating negotiations by end of October 2017 to enable the results feed into the budget formulation process. UNCONDITIONAL GRANT GUIDELINE

  20. Design of the Fiscal Decentralization Architecture • The allocation formulae has been reviewed and this will be followed by the Design of the Fiscal Decentralization Architecture (FDA)or the LG financing framework and determination of the share of transfers in the national budget. FDA elements indicated in figure1 below shall be reconfigured to give shape to LG financing. The design of the FDA will focus on the key elements which were found to have gaps as reflected in the figure below. These are the legal and practical provisions that shall ensure orderly operation, protection, credibility and reliability of the fiscal decentralisation system. This will also constitute the fourth phase of the current reforms in the Fiscal Decentralisation. UNCONDITIONAL GRANT GUIDELINE

  21. Figure 1: The Pillars (6) of the Proposed FDA UNCONDITIONAL GRANT GUIDELINE

  22. Determining LG Share out of National Budget • This phase shall also include, reviewing LG mandates and estimating the cost of adequately financing those mandates relative to the overall budget • This is to ensure that the size of grant transfers to LGs is commensurate with the range of services provided by the LG's which helps to improve confidence in budgets and sustain service delivery. • Status: The Commission has secured support from FINMAPIII to undertake this phase of the reforms effective October 2016. UNCONDITIONAL GRANT GUIDELINE

  23. Establishing and Rolling-out of the Local Revenue Database • From the series of studies that have been undertaken by the Commission and several other organizations and research institutions regarding local revenue enhancement in LGs, one of the main challenges hindering local revenues in the local governments is lack of credible and sufficient data on the current local revenue sources. • The overall objective of establishing local revenue database is to improve the performance of local revenues in the local governments • Status: The LGFC with support from FINMAPIII has supported 18 districts in FY2014/15, 25 districts in FY2015/16; will support 30 more districts in 2016/17 and targets to support another 40 in FY 2017/18. UNCONDITIONAL GRANT GUIDELINE

  24. Establishing and Rolling-out of the Local Revenue Database - Performance • The local revenue database system was installed in 122LGs but effectively operational in 24 districts and 14 Mcs under the USMID program. • As a result all the districts and municipalities supported have significantly increased their local revenue collections. Between FY2012/13 and FY2013/14 for example, Jinja district improved collections from UGX 597m to UGX 1.0bn while Ntungamo district improved from UGX 289m to UGX 647m; Mbarara MC has improved from UGX 3.6bn to UGX 5.1bn; Aura MC from UGX 2.1 to UGX 3.1; Gulu MC from UGX 1.96bn to UGX 3.87bn; Busia MC from UGX1.76bn to UGX2.75bn just to mention few. UNCONDITIONAL GRANT GUIDELINE

  25. Challenges of Establishing LR Databases • Some of the LGs which have been supported have not given the activity the attention it deserves; so they need to strategically provide support to the LLGs (in terms of operational funds to collect and update data, assess the tax payers and sources e.t.c) and supervision follow-up. • Many of these LGs that are receiving the support do not have appropriate equipment like computers and printers, yet they are very necessary and therefore should be included in the budgets for revenue enhancement. UNCONDITIONAL GRANT GUIDELINE

  26. Review of legislation for local revenues • Legal issues have been identified as a major challenge that inhibits the effective management of local revenues. A number of weak legal provisions have been identified that require reviews and amendments to strengthen the legal regime that strongly supports local revenue management in local governments have been proposed. • The key ones include those on Local Service Tax, Local Government Hotel Tax, Property Rates, Trading licenses, Market dues, Royalties, Agency fees, Fish licenses and Departmental fees. • These provisions were identified and discussed in the Local Revenue Enhancement Committee (LRECC) meetings. The Commission is now working with the Law Reform Commission to enable amendment of the laws effected. • The Objectives of these proposals are to improve the local revenue performance from the current collection of UGX 148 billion as of FY 2012/13 to UGX 500 billion. UNCONDITIONAL GRANT GUIDELINE

  27. Thanks for listening.

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