Capacity development in the context of Decentralisation

1. Capacity development in the context of Decentralisation Support for the Review of Intergovernmental Financing Arrangements Capacity Development Showcase Port Moresby, 13 November 2008

2. Why sub-national is so important

3. National government has a limited service delivery role • Operates 1 hospital in each province • 120 school inspectors • majority in districts • Provincial Works Offices • mainly deal only with national highways • Provincial and district treasuries • Police, Prisons, District Courts • Some regional offices • Dept Agriculture; Lands; Labour • (Recentralisation of service delivery would involve massive change management)

4. Most service delivery is a sub-national responsibility • Province-level key responsibilities • Health program coordination and distribution of drugs • Secondary schools maintenance, supply of basic educational materials to all levels (subsidy or in kind) • Maintain 60% of PNG’s road network (includes district roads) • Village court supervision, training, audit • District-level key responsibilities • Operation of all government health facilities including transport • Outreach patrols • Agricultural extension patrols • Pay village court allowances • LLG-level key responsibilities • Aid post operations and maintenance • Primary and elementary school maintenance

5. Achieving MDGs can only happen if problems of sub-national service delivery are addressed

6. MDGs and provincial service delivery

7. Money is not everything… …but it is essential! While sub-national funding for service delivery remains inadequate, it is unlikely that MDGs will improve The challenge: building the capacity of the intergovernmental financing system to fund service delivery properly

8. Reforming intergovernmental funding—a systems perspective • Relates to more than just organisational issues at provincial level • Involves: • Distribution of tasks and roles between levels of government • Impacts on line and central agencies • Monitoring and accountability systems • National and Provincial budget processes • Systems for managing expenditure of money • Flow-on effects to human resource management

9. Review of Intergovernmental Financing Arrangements chronology • 2002—initial ToR for review, scoping paper • 2003—background papers & development of interim arrangements (function grants) • 2004-2005—background papers continue, broad proposals put to Governors • 2006—Alternative broad proposals put to Treasury, design process begins, Organic law amendments drafted • 2007—Policy finalised, Ordinary Act drafted • 2008—Organic law amendments passed, implementation begins

10. Key factors in success • Adopting a systems approach • Capitalising on opportunity • Information, information, information • A good policy process • Managing the political dimensions • PNG ownership of process • Role of TA

11. Intergovernmental financing as a system • Allocating tasks to different levels of government • Needs to be matched to capacity and staffing • Also reflects efficiency (subsidiarity) principles • Allocating funding to match the tasks • Vertical balance (between national and sub-national) • Sharing funding fairly between different sub-national units • Horizontal – to each according to its needs… • Monitoring and accountability • These components provide the framework within which more conventional approaches focus on individual and organisational capacity development

12. Opportunity for reform • Fiscal pressure driving reform • 2001 fiscal crisis • Reform-minded government • 2002 cabinet budget decision recommends review of grant formula • Independent Commission • NEFC set up in 1998 – but role unclear • Constitutional office – so independent of government • Flexible TA (ASF) ‘seconded’ from PSRMU

13. A good policy process • Identify the problem first • Make sure it really is the problem, not just another symptom • Tendency is to start with a solution in search of a problem • Gather information to understand the nature of the problem (evidence-based approach) • Find out how other countries address the same problem • Develop options and evaluate them • Consult with stakeholders at every step of the process—especially Treasury

14. Information, and more information • Provincial internal revenues • Revealed gross imbalance = need for more equalisation • Provincial functions and responsibilities • Revealed decentralisation of functions had been travelling in opposite direction to funding – hence vertical imbalance • Cost of service delivery • Revealed even more imbalance – poorest provinces have highest costs • Provincial expenditure • Revealed problems with provinces spending what little they have

15. Legitimacy and advocacy • Credibility of NEFC rested on quality of information and capacity of leader to communicate • Almost three years spend developing ownership of the need for more equalisation, based on costs rather than kina-per-head • Found graphic ways to represent the equalisation problem • Information products: • plain English guide to new system, DVDs (currently playing on national TV)

16. The pig is being divided very unfairly Equalisation: A new way to cut up the pig

17. Political dimensions - design • Design needed to include “hold harmless” – no province gets less • 73 MPs need to vote twice for OL changes • 20 MPs come from SHP and Morobe (relatively “rich” provinces) • Consultation in advance allowed design and advocacy (language) to be adapted to reflect key stakeholders concerns • Eg., make the link between provincial funding and district-level service delivery more obvious • Challenge = to overcome bureaucratic instincts to treat politicians like mushrooms!

18. Political dimensions - process • NEFC as honest broker – independent, and therefore not on either “side” • Started with Governors – then took their “demands” back to Treasurer • Secured fiscal commitments, then designed system to fit • Briefed over 40 MPs between early 2006 and late 2007 • Ongoing engagement at political level offers: • Opportunity to disarm potential barriers to change • Opportunity to stimulate support from potential ‘big winners’ • Keep donors in the loop too!

19. PNG ownership • Entry point: opportunity offered by government’s reform decision in 2002 • However, building ownership of equalisation took over two years • PNG agency in control of policy process • Autonomous, and therefore independent • Strong PNG leadership • Not pressured to follow a donor timetable • Policy process allowed development of: • Understanding • Acceptance of radical concept (equalisation based on need) • Political will • Common vision about implementation

20. Role of TA • In-line, but mainly technical • Technical consultants – gathering information and helping formulate options (individual counterparts to one or more agency staff) • Strategic management advice—on policy process and managing politics (senior adviser to Chairman) • TA managed by informal “team leader” and agency head jointly, with agency head as clear leader • TA had expertise in process and general issues, but not highly specialised detail • Developing expertise in intergovernmental financing was a joint journey of discovery for TA and agency staff • Avoided imposition of cookie-cutter solutions from other countries • TA relationship to agency • TA worked as part of team managed by NEFC Chairman (the ‘Boss’)

21. More money is only half the answer How to get the money spent better?

22. Challenges of building “capacity to spend better” • Expenditure management systems = • Very diffuse—difficult to get a picture of how they actually operate • Embedded in every agency (connective tissue of public administration) • Need to understand how and why they operate the way they do • Informal often different from formal • Process reality vs prescribed process • Sequencing very important • Eg, cannot have accountability without clarifying responsibility first • Political context is very important • Governance and effectiveness may have to be traded off • Good enough governance