decentralization and subnational management in lac: lessons from experience
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Decentralization and Subnational Management in LAC: Lessons from experience. Overseas Development Institute Seminar: Strengthening Sub-National Governance for Poverty Reduction: Innovations and Impact Kathrin A. Plangemann The World Bank September 11, 2008 London, UK. - PowerPoint PPT PresentationTRANSCRIPT
Decentralization and Decentralization and Subnational Management Subnational Management
in LAC: in LAC: Lessons from experienceLessons from experience
Overseas Development Institute Seminar:Overseas Development Institute Seminar:Strengthening Sub-National Governance Strengthening Sub-National Governance for Poverty Reduction: Innovations and for Poverty Reduction: Innovations and
ImpactImpact
Kathrin A. PlangemannKathrin A. PlangemannThe World BankThe World Bank
September 11, 2008September 11, 2008London, UKLondon, UK
Decentralization in LAC: Decentralization in LAC: The BasicsThe Basics
Decentralization: Transfer of authority and Decentralization: Transfer of authority and responsibility for governance and public service responsibility for governance and public service delivery from a higher to a lower level of government delivery from a higher to a lower level of government • DeconcentrationDeconcentration• DelegationDelegation• DevolutionDevolution• PrivatizationPrivatization
Rationale and Stages: Rationale and Stages: • Political: Political: Creation of new levels of government/elections of Creation of new levels of government/elections of
local authorities as part of regional democratization processlocal authorities as part of regional democratization process• Fiscal: Fiscal: Decentralization of revenue/expenditure management; Decentralization of revenue/expenditure management;
intergovernmental transfers, debtintergovernmental transfers, debt• Service delivery: Service delivery: Enhancing service outcomes across sectorsEnhancing service outcomes across sectors• Private sector development: Private sector development: Subnational investment climate Subnational investment climate
Why decentralize?Why decentralize?
BenefitsBenefits Greater responsiveness to citizens’ needsGreater responsiveness to citizens’ needs Allocative efficiency Allocative efficiency Increased transparency through civil society participation and Increased transparency through civil society participation and
clearly defined constituenciesclearly defined constituencies Creation of public goods (additional mobilization of public and Creation of public goods (additional mobilization of public and
private resources).private resources).
Potential costs and risksPotential costs and risks Loss of economies of scale and control over scarce financial Loss of economies of scale and control over scarce financial
resources by the central government, resulting in increasing fiscal resources by the central government, resulting in increasing fiscal pressurepressure
Higher difficulty for coordination of national policies.Higher difficulty for coordination of national policies. Unequal distribution of resources/horizontal imbalances Unequal distribution of resources/horizontal imbalances Weak administrative/ technical capacity adversely affecting service Weak administrative/ technical capacity adversely affecting service
deliverydelivery Risk of additional fiscal pressure or over-indebtedness of Risk of additional fiscal pressure or over-indebtedness of
subnational governments subnational governments Capture by local elites (Patronage, CorruptionCapture by local elites (Patronage, Corruption))
Variations across LAC: Variations across LAC: Who’s got the money?Who’s got the money?
Further variations due Further variations due to:to:
Vertical and Vertical and horizontal horizontal imbalancesimbalances
Discretionality in Discretionality in allocation of allocation of resources (e.g. resources (e.g. earmarking)earmarking)
Sectoral variationsSectoral variations
Subnational expenditure share in total
(Source: IMF GFS)
46% 45%35%
25% 23%
8%0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Argentina(2001)
Brazil(1998)
Bolivia(2001)
Peru(2001)
Mexico(2000)
Chile(2001)
From Fiscal Decentralization to From Fiscal Decentralization to Subnational Public Subnational Public
Management Management From the design of fiscal From the design of fiscal federalism to greater support federalism to greater support to Subnational Public to Subnational Public Management:Management:• Public expenditure management Public expenditure management
(FM, PBB, Procurement, Public (FM, PBB, Procurement, Public investment, tax administration); investment, tax administration);
• Civil service;Civil service;• e-Government;e-Government;• JusticeJustice• M&EM&E• Broader GAC agenda Broader GAC agenda
Fiscal Decentralization
Inte
rgovern
menta
l Tra
nsf
ers
Sub
nati
onal D
eb
t
Revenue M
anagem
en
t
Expendit
ure
Man
agem
ent
Decentralization and Decentralization and Subnational Management Subnational Management
Support in LACSupport in LAC Development Policy Lending on Decentralization:Development Policy Lending on Decentralization:
• Peru, Bolivia; Colombia, Nicaragua (decentralization Peru, Bolivia; Colombia, Nicaragua (decentralization components)components)
Development Policy Lending to subnational levels:Development Policy Lending to subnational levels:• Mexico, Argentina (Cordoba, Santa Fe, Catamarca)Mexico, Argentina (Cordoba, Santa Fe, Catamarca)
Investment lending:Investment lending:• Chile, Brazil, Peru, ArgentinaChile, Brazil, Peru, Argentina
Subnational SWAP (Sector Wide Approach):Subnational SWAP (Sector Wide Approach):• Brazil (Ceará, Minas Gerais)Brazil (Ceará, Minas Gerais)• Argentina (San Juan, others in preparation)Argentina (San Juan, others in preparation)
AAA (Analytical and Advisory Activity):AAA (Analytical and Advisory Activity):• Bolivia, Ecuador, Dominican Republic, Chile, Argentina, PeruBolivia, Ecuador, Dominican Republic, Chile, Argentina, Peru• Increasingly direct support to subnational governments Increasingly direct support to subnational governments • (e.g. FFS Mexico, Argentina, others)(e.g. FFS Mexico, Argentina, others)
Increased LAC lending for Increased LAC lending for subnational public subnational public
managementmanagementWB LAC Sub-national Government Administration - Public
Sector Governance projects
110 119 30 60
486
348
858
616
190
2466
0
500
1000
1500
2000
2500
3000
Approval Year
Co
mm
itte
d A
mo
un
t
(in
mil
lio
n$)
0
1
2
3
4
5
6
7
8
9
Nu
mb
er
of P
roje
cts
Amount Number
* Until August 2008
(WB Projects with Sub-national government administration as major sector AND Public Sector Governance as major theme)
What worked, what didn’tWhat worked, what didn’t
Evaluation of effectiveness of Bank support to Evaluation of effectiveness of Bank support to decentralization in 20 countries between decentralization in 20 countries between 1990 and 2007 showed: 1990 and 2007 showed:
Bank support most effective: Bank support most effective: • design of intergovernmental legal framework design of intergovernmental legal framework
and transfer system, and transfer system, • subnational public expenditure managementsubnational public expenditure management
Bank support less effective: Bank support less effective: • clarification of roles and responsibilities of clarification of roles and responsibilities of
different levels of governments, different levels of governments, • Improvements of own-source revenue Improvements of own-source revenue
mobilizationmobilization
IEG: RecommendationsIEG: Recommendations
Invest in timely analytical work prior to lendingInvest in timely analytical work prior to lending Seek more realistic and pragmatic loan design, Seek more realistic and pragmatic loan design,
after an assessment of the political economyafter an assessment of the political economy Improve coordination of sectoral decentralization Improve coordination of sectoral decentralization Combine policy-level support with TA for Combine policy-level support with TA for
subnational capacity-strengthening subnational capacity-strengthening Encourage a more results-based approach to Encourage a more results-based approach to
decentralization with greater M&E decentralization with greater M&E N.B.: Impact of Bank support higher when: N.B.: Impact of Bank support higher when:
• Prior consensus given on decentralization reforms Prior consensus given on decentralization reforms • Greater incentives for subnational institutional reformGreater incentives for subnational institutional reform• Improved donor coordination Improved donor coordination
Emerging issuesEmerging issues From a focus on the overall fiscal decentralization From a focus on the overall fiscal decentralization
framework to a greater focus on service-delivery framework to a greater focus on service-delivery across sectors, including on federal level non-across sectors, including on federal level non-priority issuespriority issues
Towards a greater subnational M&E culture: Towards a greater subnational M&E culture: results-based management and budgetingresults-based management and budgeting
Greater focus on spatial issues (e.g. upcoming Greater focus on spatial issues (e.g. upcoming WDR) to unbundle territorial development issuesWDR) to unbundle territorial development issues
Private Sector Development / Investment climate, Private Sector Development / Investment climate, particularly in MICparticularly in MIC
Addressing the different needs of increasingly Addressing the different needs of increasingly confident and innovative subnational governments confident and innovative subnational governments through new custom-made mechanisms: FFS through new custom-made mechanisms: FFS
Accountability and Capacity Accountability and Capacity for Service Deliveryfor Service Delivery
National Policy makers
Local Policy Makers
Public / Private Providers Clients / Citizens
VOICE
COMPACT / MANAGEMENT
CLIENT POWER
From World Bank (2004) World Development Report: Making Service Delivery Work for Poor People
“Demand Side”
“Supply Side”
Framework for Monitoring Local Government Framework for Monitoring Local Government PerformancePerformance
Inputs
Fiscal revenue and spending patterns
Intermediates/Process
Public Financial Management Outcomes
Governance (Voice/Client Power)
Outcomes
Service Delivery Perceptions/
Outcomes
Citizens/Firms
Is spending adequate or pro-poor?
Is access and quality being achieved, e.g., at some minimum standard?
Are intermediate processes consistent with local good
governance?
WB 2007: Actionable Governance Indicators: Decentralization
Monitoring Subnational Monitoring Subnational Public Management - Public Management -
PEFA PEFA Widely used monitoring framework among different Widely used monitoring framework among different
donorsdonors Indicators allow diagnostics of areas of public Indicators allow diagnostics of areas of public
expenditure and financial accountabilityexpenditure and financial accountability 28 Performance Indicators + 3 for donors, including 28 Performance Indicators + 3 for donors, including
on issues such as intergovernmental transferson issues such as intergovernmental transfers Used for measuring subnational governments PEM Used for measuring subnational governments PEM
performanceperformance Allows benchmarking between subnationalsAllows benchmarking between subnationals
Territorial Territorial development/investment development/investment climate: What is new? climate: What is new?
Especially in MIC, move away from specific support Especially in MIC, move away from specific support mechanisms towards one level of government and towards mechanisms towards one level of government and towards an integrated territorial/spatial supportan integrated territorial/spatial support
Increasing demands to provide support to subnational Increasing demands to provide support to subnational economic development, and reduction of horizontal economic development, and reduction of horizontal inequalitiesinequalities
Need to integrate public sector strengthening with private Need to integrate public sector strengthening with private sector development and subnational investment climate sector development and subnational investment climate strengthening for greater subnational competitiveness, strengthening for greater subnational competitiveness, subnational ICAs, DB etc.subnational ICAs, DB etc.
Innovative practices in Mexico (Guerrero), Brazil (Sao Paulo), Innovative practices in Mexico (Guerrero), Brazil (Sao Paulo), and Argentina (Corrientes)and Argentina (Corrientes)
The new kids on the blockThe new kids on the block
Increasingly sophisticated subnational governments, in some Increasingly sophisticated subnational governments, in some cases with high natural endowments are increasingly cases with high natural endowments are increasingly confident and eager to access markets and Bank financingconfident and eager to access markets and Bank financing
Innovative and reform-minded subnational government Innovative and reform-minded subnational government create demonstration effects for public sector management create demonstration effects for public sector management to be taken up and replicated at the central level (Argentina, to be taken up and replicated at the central level (Argentina, Brazil)Brazil)
Greater demand for demand-driven, customized, advisory Greater demand for demand-driven, customized, advisory services, with donors as just in time service-providers (e.g. services, with donors as just in time service-providers (e.g. FFS on subnational issues, e.g. Mexico, Chile)FFS on subnational issues, e.g. Mexico, Chile)
Stronger pressures for donors for selectivity in addressing Stronger pressures for donors for selectivity in addressing subnational needs: Supporting richer, reform-minded subnational needs: Supporting richer, reform-minded subnational governments vs. poorer, less-reform-minded subnational governments vs. poorer, less-reform-minded governments? governments?
DFID support for DFID support for innovation through MGPRinnovation through MGPRDFID’s Markets and Governance for DFID’s Markets and Governance for
Poverty Reduction Trust FundPoverty Reduction Trust Fund Governed by tripartite Coordination Group (DFID, Governed by tripartite Coordination Group (DFID,
WB, IADB) and in LAC, by cross-sectoral group WB, IADB) and in LAC, by cross-sectoral group Since 2006, Grants approved for US$6,873,900 Since 2006, Grants approved for US$6,873,900 7 tranches, covering 47 proposals7 tranches, covering 47 proposals Overarching Goals: Overarching Goals:
• Reduce poverty and inequality and promote social Reduce poverty and inequality and promote social inclusion; andinclusion; and
• Develop good practices based on lessons learned.Develop good practices based on lessons learned.
DFID support for DFID support for innovation through MGPRinnovation through MGPR
DFID’s Markets and Governance for Poverty Reduction DFID’s Markets and Governance for Poverty Reduction Trust FundTrust Fund
Two programs:Two programs:• Latin American Markets and International Trade (e.g. Latin American Markets and International Trade (e.g.
Regional Municipal Scorecard Program on regulatory Regional Municipal Scorecard Program on regulatory environment)environment)
• Public Sector Management and Political Systems (e.g. Public Sector Management and Political Systems (e.g. Strengthening of Statistical capacity, HD governance)Strengthening of Statistical capacity, HD governance)
Objectives PSMPS: Objectives PSMPS: • Expand the use of political analysis and practical Expand the use of political analysis and practical
approaches, such as demand-side work with civil approaches, such as demand-side work with civil society, including unions, political parties, etc., to build society, including unions, political parties, etc., to build constituencies for reform; and constituencies for reform; and
• Reinforce subnational governance, e.g. strengthening of Reinforce subnational governance, e.g. strengthening of political economy analysis to inform operations.political economy analysis to inform operations.
DFID Support for Subnational DFID Support for Subnational Management in PeruManagement in Peru
DFID support for fiscal decentralization in Peru: DFID support for fiscal decentralization in Peru: Municipal mining royalties management (US$ 155k):Municipal mining royalties management (US$ 155k):
ObjectiveObjective: Increase the social accountability of municipal : Increase the social accountability of municipal governments and improve their responsiveness to the governments and improve their responsiveness to the demands of the local population to enhance the quality and demands of the local population to enhance the quality and sustainability of municipal investments financed with the sustainability of municipal investments financed with the mining royalties.mining royalties.
DFID funds allowedDFID funds allowed::• Monitoring of royalty flows and municipal investmentMonitoring of royalty flows and municipal investment• Dissemination of information through civil society groups Dissemination of information through civil society groups • Promotion of discussion of use of public fundsPromotion of discussion of use of public funds• Greater competition among municipal governments Greater competition among municipal governments
encouraged by close media monitoringencouraged by close media monitoring• New accountability mechanisms, including feedback to New accountability mechanisms, including feedback to
mayors on public investment managementmayors on public investment management
DFID Support for Subnational DFID Support for Subnational Management in BrazilManagement in Brazil
DFID support for Bank on subnational GovernanceDFID support for Bank on subnational Governance
related activities (US$ 200k annually):related activities (US$ 200k annually): Analytical work: contribution to Good Governance Analytical work: contribution to Good Governance
AAA and governance “drill-downs” in social sectors;AAA and governance “drill-downs” in social sectors; Strengthening FM, auditing and carrying out PEFA Strengthening FM, auditing and carrying out PEFA
assessments in four states;assessments in four states; High-level dialogue on public expenditures:High-level dialogue on public expenditures:
Major PSM conference on cutting-edge reforms in Brazil Major PSM conference on cutting-edge reforms in Brazil on OECD experiences with on OECD experiences with Finance, Planning and all Finance, Planning and all state governmentsstate governments
Conference by Budget Secretariat on Budgeting for Conference by Budget Secretariat on Budgeting for Subnational Governments and support to RBBSubnational Governments and support to RBB
Impact of DFID-financing: Impact of DFID-financing: The case of BrazilThe case of Brazil
Brazil:Brazil:• Sharing good practices and building communities of Sharing good practices and building communities of
practitioners across subnational governments,practitioners across subnational governments,• Strengthening demand for PSM reform, e.g. RBM/RBBStrengthening demand for PSM reform, e.g. RBM/RBB• Greater use of M&E, e.g. PEFA assessments.Greater use of M&E, e.g. PEFA assessments.
Bank:Bank:• High-level dialogue: Access to key policy-makers, allowing High-level dialogue: Access to key policy-makers, allowing
Bank positioning as key institution on PSM, Bank positioning as key institution on PSM, resulting in more resulting in more subnational requests for PS supportsubnational requests for PS support
• Agenda-setting: quality of expenditure at center of dialogueAgenda-setting: quality of expenditure at center of dialogue• Increased flexibility (e.g. short-term availability of Increased flexibility (e.g. short-term availability of
consultants), consultants), • Increased responsiveness to client needs (products/process)Increased responsiveness to client needs (products/process)
DFID-Bank Collaboration:DFID-Bank Collaboration:Achievements and OpportunitiesAchievements and Opportunities
• Fostering innovation, piloting new approaches and scaling Fostering innovation, piloting new approaches and scaling up interventions, including in areas that are traditionally not up interventions, including in areas that are traditionally not supported by the Bank (e.g. entry-points into more supported by the Bank (e.g. entry-points into more “political” areas) “political” areas)
• Tapping into OECD experiences, particularly for MICTapping into OECD experiences, particularly for MIC• Shift in Bank role from providing traditional development Shift in Bank role from providing traditional development
solutions to more partner and service-provider on a solutions to more partner and service-provider on a demand-driven basis, offering more tailor-made products demand-driven basis, offering more tailor-made products
• Putting governance higher on the agenda, including support Putting governance higher on the agenda, including support to greater transparency and accountability through to greater transparency and accountability through improved participation and consultations improved participation and consultations
• Leveraging the role of the Bank as a catalyst and convening Leveraging the role of the Bank as a catalyst and convening power to bring together public and private stakeholders, power to bring together public and private stakeholders, including strengthening of the South-South Dialogueincluding strengthening of the South-South Dialogue
• Promoting donor coordination by harmonizing procedures Promoting donor coordination by harmonizing procedures mobilizing additional support for follow-up projectsmobilizing additional support for follow-up projects