Localising the SDGs: the Role of Fiscal Transfers 4 Coherence Issues Arising Manila, 3 rd October 2017

Transcription

1 Localising the SDGs: the Role of Fiscal Transfers 4 Coherence Issues Arising Manila, 3 rd October 2017 Roger Shotton LOCAL PUBLIC ACTION FOR THE SDG AGENDA RATIONALE - LOCAL PUBLIC GOODS : BETTER INFORMATION TO SHAPE LOCAL PLANS & BUDGETS TO WIDELY VARYING LOCAL NEEDS & PRIORITIES EASIER TO INTEGRATE & COORDINATE EASIER TO GAIN CITIZEN INPUT CLOSER OVERSIGHT, ACCOUNTABILITY & EASIER FEEDBACK LIMITS & CAVEATS TYPICAL LOCAL SERVICE DELIVERY MANDATES IN ASIA WATER/SANITATION = MAJOR SUB- LOCAL ROADS SET OF THE WASTE DISPOSAL EARLY CHILDHOOD CARE SDG AGENDA BASIC HEALTH BASIC EDUCATION COHERENCE ISSUES AGRICULTURE ENVIRONMENT FOR FINANCING & SOCIAL WELFARE BUDGETING? SOCIAL PROTECTION WHY TRANSFERS? THE BASIC FISCAL IMBALANCE R E V E N U E S FISCAL TRANSFERS CENTRAL??? SUB- NATIONAL TIER 1? TIER 2 FISCAL TRANSFERS?????? E X P E N D I T U R E S FISCAL TRANSFERS = 50%-95% LOCAL BUDGETS 1

2 10/10/2017 FISCAL TRANSFER INSTRUMENTS: MAIN TYPES & OBJECTIVES SHARED REVENUES ADDRESS VERTICAL GAP + MEEET LOCAL POLITICAL CLAIMS + COVER EXTERNALTIES CENTRAL UNTIED GRANTS TIED GRANTS LOCAL BUDGET SUPPORT TO ALLOW FLEXIBLE FINANCING OF GENERAL MANDATE + EQUALISATION + PARTICIPATION PROMOTE SPENDING ON CENTRAL PRIORITIES + ENSURE CENTRAL STANDARDS + ADDRESS EXTERNALITIES SHARED REVENUES UNTIED GRANTS % BY LOCALITY OF ORIGIN BY FORMULA (NOW USUALLY) TIED GRANTS BY NORMS, FORMULA, PRECEDENT S S Each Tier FISCAL TRANSFERS FOR THE LOCAL SDG AGENDA: GENERAL ISSUES ACROSS ASIA NATIONAL TRANSFER POOLS OFTEN INADEQUATE & UNSTABLE YEAR-BY-YEAR OFTEN PROFUSION MULTIPLE TRANSFERS, MULTIPLE OBJECTIVES, OFTEN NOT COORDINATED MICRO POLICY OFTEN OUT OF STEP WITH MACRO POLICY OFTEN UNINTENDED PERVERSE EFFECTS: ON EQUITY OUTCOMES ON INCENTIVES FOR SOUND BUDGETING INSUFFICIENT USE OF POSITIVE INCENTIVE OPPORTUNITIES COHERENCE ISSUE # 1: INADEQUACY OF TRANSFERS: MIND THE GAP SHORTFALL IN TRANSFERS!! LOCAL EXPENDITURES NEEDED TO FULLY ADDRESS LOCAL SDGRELATED MANDATES [OFTEN AN UNCLEAR QUANTUM] ACTUAL FISCAL TRANSFERS INADEQUATE & UNPREDICTABLE LOCAL REVENUES YES, CENTRAL BUDGET CONSTRAINTS BUT ALSO: LACK GUIDANCE ON SERVICE STANDARDS & COST IMPLICATIONS AS BASIS FOR DETERMINING POOL SIZES. LOCAL MANDATES OFTEN UNCLEAR OR LEGAL & REGULATORY FRAMEWORKS INCONSISTENT FUNCTIONAL REASSIGNMENT V DIFFICULT EXERCISE SECTOR MINISTRIES RESIST TRANSFER FUNCTIONS & RESOURCES! 2

3 10/10/2017 COHERENCE ISSUE #2: EQUITY BETWEEN LOCALITIES [SDG 10] EQUITY ACROSS LOCALITIES DOES NOT MEAN EQUAL PUBLIC RESOURCES PER CAPITA BUT VARIANCE SHOULD BE WITHIN REASONABLE LIMITS OFTEN NOT: TRANSFERS PER CAPITA (USD): VARIANCE COUNTRY MYANMAR TO STATES/REGIONS FY 2016/17 MONGOLIA TO SOUMS FY 2016! MEAN MAX. MIN. MAX:MIN RATIO : ,275:1 WHY? EXTREME VARIANCE USUALLY DUE TO COMBINATION OF:: LARGE REVENUE-SHARING TRANSFERS ESP. EXTRACTIVE INDUSTRY WITH UNCLEAR OBJECTIVES GRANT TRANSFER POOLS: SIZE INADEQUATE TO EQUALISE + PERVERSE FORMULA AND POLITICAL ECONOMY FACTORS FISCAL TRANSFERS: EQUITY ISSUES MONGOLIA MYANMAR Thousands MNT 300,000 MNT R e ven ue pe r ca pita - M M K 250, , ,000 Grant transfer Shared revenue 100,000 Own revenue 50,000 - DANGERS IN REVENUE-SHARING AGREEMENTS ESP.EXTRACTIVE SECTORS > INEQUITIES V DIFFICULT TO REVERSE OR COMPENSATE > MAJOR INEQUITIES ESP. WHEN RATIONALE FOR SHARING UNCLEAR BOOM/BUST CYCLE PROBLEMS GRANT FORMULAS ALSO NEED CARE: COMPUTATION + MANIPULATION ISSUES COHERENCE ISSUE #3: PERVERSE INCENTIVES AFFECT LOCAL BUDGETING & SERVICE QUALITY A $ B $$$$ C $$$$$$$$$ LOCAL PFM BLACK BOX PERVERSE INCENTIVES IN TRANSFERS OFTEN UNDERMINE: FLEXIBILITY IN TAILORING & COORDINATING ACTIVITIES TO ADDRESS SPECIFIC LOCAL SDG CHALLENGES GENERAL EFFECTIVENESS & EFFICIENCY OF PLANNING, BUDGETING & DELIVERY PROCEDURES FOR LOCAL PUBLIC GOODS & SERVICES SDG-RELATED SERVICE DELIVERY QUALITY UNDERMINED DUE TO PERVERSE INCENTIVES 3

4 5 TRANSFER FEATURES PERVERSE INCENTIVE EFFECTS CONDITIONALITIES RESTRICTS SCOPE LOCAL CHOICE & SDG TAILORING TO CONTEXT PARALLEL PLANNING PROCESSES REDUCED INCENTIVE TO PARTICIPATE ANNUAL NATIONAL TRANSFER POOL ALLOCATION ACROSS LOCALITIES TIMING OF ALLOCATIONS RELEASE TO LOCAL LEVEL EXTREME ANNUAL VARIABILITY UNDERMINES LOCAL BUDGETING BOOM/BUST WASTE/PENURY GAP FILLING UNDERMINES BUDGET PRIORITISN. & FISCAL EFFORT INCLUSION TAX REVENUE IN FORMULA MAY DETER LOCAL EFFORT SECTOR GRANT ALLOCATION BY FACILITIES MAY BIAS TO SAME LATE ANNOUNCEMENT UNDERMINES LOCAL BUDGET PRIORITY-SETTING DELAYED RELEASE UNDERMINES LOCAL BUDGET PRIORITY-SETTING POSSIBLE SOLUTIONS RELAX AS FAR AS POSSIBLE; DEVELOP EFFECTIVE EX POST MONITORING & INCENTIVES STABILISE AS % NAT. REVENUES MTFF LINK FORMULA-BASED BUT WITH CARE USE TAX CAPACITY NOT ACTUAL REVENUES SECTOR GRANTS BASED ON OUTPUTS/OUTCOMES ANNOUNCE IN TIME BEFORE LOCAL BUDGET FINALISED SIMPLIFY EX ANTE CONTROLS, REPORTING & TREASURY VERTICAL COHERENCE ISSUE #4: PERFORMANCE-BASED GRANT TRANSFERS (PBGs): AN OPPORTUNITY TO TRANSMIT POSITIVE INCENTIVES MANY BASED ON UNCDF/UNDP PILOTING + WORLD BANK REPLICATION ASSOCIATED WITH UNTIED/UNCONDITIONAL GRANTS CREATING POSITIVE INCENTIVES FOR BETTER PLANNING, BUDGETING & MANAGEMENT OF GENERAL LOCAL SERVICE DELIVERY MANDATE EXAMPLES IN ASIA: NEPAL BANGLADESH PHILIPPINES INDONESIA SOLOMON ISLANDS MONGOLIA INDIA: WEST BENGAL INITIALLY BUT NOW NATION-WIDE (FOLLOWING 14 TH CFC RECOMMENDATIONS). EXAMPLE: PERFORMANCE-BASED GRANTS IN BANGLADESH 4,554 UNION PARISHADS: WIDE RANGE SDG-RELATED MANDATES ANNUALLY PERFORMANCE ASSESSMENT IN 6 AREAS: PLANNING & BUDGETING PROCUREMENT, REPORTING & PFM LOCAL REVENUE MOBILISATION MONITORING & OVERSIGHT TARGETING DEMOCRATIC GOVERNANCE 41 INDICATORS MINIMUM COMPLIANCE SCORING TOP-UP GRANTS FOR HIGHEST SCORERS OVER 3 YEARS, TREND IMPROVEMENT IN SCORES FOR 37 OF 41 INDICATORS: MDG-FOCUSSED PLANNING +62% ANNUAL PLANNING + 17% APPROVAL OF MORE STRATEGIC PROJECTS BENEFITTING >1 WARD + 24% ESTABLISHMENT OF LOCAL MONITORING COMMITTEES + 19% TAX ASSESSMENT & REVENUE COLLECTION + 27% ALSO IMPROVEMENTS AS COMPARED TO CONTROL AREAS UNDER THE NATIONAL PROGRAMME. 4

5 OTHER PERFORMANCE-BASED GRANT EXPERIENCE IN SPECIFIC SDG-RELATED AREAS CLIMATE-CHANGE ADAPTATION GRANTS: CAMBODIA, BANGLADESH, BHUTAN, VANUATU [LoCAL UNCDF, UNDP] PROTECTING FRAGILE ECO-AREAS GRANTS: BRAZIL, PORTUGAL, FRANCE, INDONESIA? HEALTH GRANTS: ARGENTINA, BRAZIL, UGANDA WAY FORWARD ON PERFORMANCE-BASED FUNDING HOLDS GREAT PROMISE BUT NEEDS: BETTER UNDERSTANDING WHICH INCENTIVES WORK BEST IN WHICH SDG AREA SIMPLIFY ASSESSMENT PROCEDURES EXPLORE SCOPE TO MEASURE LESS COMPLIANCE & MORE DELIVERY QUALITY PERFORMANCE EXPLORE BEST WAYS OF INSTITUTIONALISING WITHIN EACH COUNTRY SYSTEM TO RECAP THE MAIN POINTS Inevitable fiscal gap for local SDG public service delivery agenda hence fiscal transfers from central government essential But perverse incentives often embedded Often unintended negative impact on (1) equity between localities and (2) local incentives for local budgeting & priority-setting But also major opportunities to use performancebased transfer financing to create positive incentives for SDG-related local public action POST-SCRIPT: BUDGET APPRAISAL & PRIORITISATION TOOLS NEEDED + TIME IN THE BUDGET CALENDAR! MYANMAR STATES/REGIONS: LOCAL ROAD INVESTMENTS MONGOLIAN SOUMS: LOCAL DEVELOPMENT INVESTMENTS M M K B IL L IO N S Kayin Shan Thaninthary 1ST PROPOSAL 2ND PROPOSAL 3RD PROPOSAL APPROVED SOUMS PROPOSED APPROVED IN BUDGET SHIVEGOBI SUMBER DALANJARGALAN

6 THANK YOU 6