Front Matter Page

IMF Country Report No. 15/287

MALI

TECHNICAL ASSISTANCE REPORT—IMPLEMENTING FISCAL DECENTRALIZATION

October 2015

This Technical Assistance report on Mali was prepared by a staff team of the Fiscal Affairs Department of the International Monetary Fund. It is based on the information available at the time it was completed on February 2015.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623-7430 • Fax: (202) 623-7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2015 International Monetary Fund

Front Matter Page

Fiscal Affairs Department

• Download Figure
• Download figure as PowerPoint slide

View Full Size

• Download Figure
• Download figure as PowerPoint slide

• Download Figure
• Download figure as PowerPoint slide

MALI

IMPLEMENTING FISCAL DECENTRALIZATION

Benoit Taiclet, Marie Laure Berbach, Moussé Sow

February 2015

The contents of this report constitute technical advice and recommendations given by the staff of the International Monetary Fund (IMF) to the authorities of Mali (TA recipient) in response to their request for technical assistance. This report (in whole or in part) or summaries thereof may be disclosed by the IMF to IMF Executive Directors and members of their staff, as well as to other agencies or instrumentalities of the TA recipient, and upon their request, to World Bank staff and other technical assistance providers and donors with legitimate interest, unless the TA recipient specifically objects to such disclosure) (see Operational Guidelines for the Dissemination of Technical Assistance Information, – http://www.imf.org/external/np/pp/eng/2009/040609.pdf, available in English only). Disclosure of this report (in whole or in part) or summaries thereof to parties outside the IMF other than agencies or instrumentalities of the TA recipient, World Bank staff, other technical assistance providers and donors with legitimate interest requires the explicit consent of the TA recipient and the IMF’s Fiscal Affairs Department (FAD).

Table of Contents

• ACRONYMS

• PREFACE

• SUMMARY OF RECOMMENDATIONS

• I. REVIEW OF DECENTRALIZATION IN MALI

• A. Institutional Anchoring of Decentralization in Mali

• B. Tight Control over Local Governments’ Freedom of Administration

• C. Insufficient Decentralized Resources

• II. APPROPRIATE SCOPE AND OBJECTIVE OF FINANCIAL DECENTRALIZATION

• A. Local Government Financial Needs to Fulfill Their Responsibilities

• B. Revenues Available in the Regions

• C. Threshold for Triggering a Development Dynamic

• III. APPROPRIATE APPROACH AND LEVELS OF FINANCIAL DECENTRALIZATION

• A. Protecting the Stability of the Macro fiscal Framework

• B. Optimizing Own Resources

• C. Ensuring a Just and Transparent Allocation of Transfers to Local Governments

• D. Regionalization: A Priority

• E. Conclusions and Recommendations

• IV. BEST FISCAL DECENTRALIZATION APPROACH FOR ENSURING LOCAL GOOD GOVERNANCE

• A. Review of Local Governance in Mali and its Risks

• B. Necessary Consolidation of the Local Civil Service

• C. Establish a Framework Favorable to Good Fiscal and Financial Governance

• D. Introducing an Accountability Framework

• E. Conclusions and Recommendations

• BOXES

• 1. The Legal Framework for Decentralization

• 2. Regionalization: a New Phase in Decentralization in Mali

• 3. Approach Based on Responsibilities – Limitations and Caveats

• 4. Revenue-Based Approach – Limitations and Caveat

• 5. Decentralization Threshold – Limitations and Caveat

• 6. Assumptions Underlying the Calculation of the Cost of Financial Decentralization

• 7. Areas for Improvement of Local Taxation

• 8. Optimization of Own Resources Will Not Cover Needs

• 9. ANICT Mechanism for the Allocation of Capital Grants

• 10. Levels of Decentralization in the WAEMU Countries

• 11. Central Government-Region Value-for-Performance Contracts

• CHARTS

• 1. Administrative Map of Mali

• 2. Operating and Capital Revenues of the Local Governments

• 3. Own Resources of the Local Governments

• 4. Share of Local Resources (% GDP and % Budget)

• 5. Current Revenue and Expenditures of the Local Governments

• 6. Relative Shares of Current and Capital Expenditures

• 7. Contribution of the Regions to the Central Government Budget

• 8. Poverty

• 9. Human Development Index

• 10. Local Government Staffing Levels by Field

• 11. Local Government Staffing Levels by Category

• TABLES

• 1. Responsibilities of the Local Governments

• 2. Organization of the Oversight of the Local Governments

• 3. Table of Local Government Fiscal Operations

• 4. Budget Execution Rates 2011–13

• 5. Quantitative Targets of Fiscal Decentralization

• 6. Central Government Budget, Expenditures by Intervention Sector

• 7. Financial Transfers from the Central Government to the Local Governments

• 8. Central Government Expenditures for the Benefit of the Local Level

• 9. Possible Transfers to the Local Level

• 10. Structure of Local and National Revenues

• 11. Degree of Satisfaction with the Quality of the Decentralized Services

• 12. Additional Costs of Decentralization

• 13. Local Government Governance Indicators

• 14. Participants in the Auditing of the Local Expenditure Process

• 15. Deployment of Units Responsible for Financial Oversight

• 16. Deconcentrated Staff of the Central Government in the Regions

• 17. Movements of Central Government Officials Between Regions

• 18. Actual and Theoretical Staffing Levels in the Deconcentrated Units of the Budget Directorate

• ANNEXES

• 1. Central Government Budget Analysis by Functional Unit

• 2. Model Used to Calculate the Threshold for Positive Outcomes from Decentralization

• 3. Some Examples of Transfer Formulas in Countries Comparable to Mali

Acronyms

Preface

At the request of the Minister of Finance and Budget of Mali, an IMF Fiscal Affairs Department mission visited Bamako from January 14 to 28, 2015 to assist with the revision of the macro fiscal, legal and financial framework to accompany decentralization. The mission focused on: (i) updating the assumptions and macro fiscal framework defined by the authorities during a government workshop on March 11, 2014; (ii) defining rules and a financial framework for the gradual transfer of responsibilities and resources to the regions; and (iii) developing proposals to ensure financial good governance at the local level.

The mission comprised Mr. Benoit Taiclet, mission chief; Mr. Moussé Sow, Fiscal Affairs Department economist; and Ms. Marie-Laure Berbach, IMF Fiscal Affairs Department panel expert.

The mission met with His Excellency Mr. Mamadou Igor Diarra, Minister of Economy and Finance and his top aides; Mr. Sidiki Traoré, Advisor to the Minister of Finance; and Ms. Zamilatou Cissé, Secretary General in the Ministry of Economy and Finance, and Mr. Ibrahima Hamma, Secretary General in the Ministry of Territorial Administration and Decentralization.

The members of the mission would like to express their sincere gratitude to the office of the Minister for the organization of the work, the accessibility of the staff, and the quality and openness of the discussions held with the various senior officials and their colleagues:

Mr. Mamadou Diakité, First Vice President, Mr. Mamadou Traoré, First Quaestor for the elected members of the Local Government High Council of Mali, Mr. Ousmane Sy, former Minister of Decentralization, Mr. Malick Alhousseini, former minister, expert to the senior representative of the President of the Republic for the Inter-Malian Inclusive Dialogue, Mr. Kloussama Goita, President of the Accounts Section; Mr. Amadou Ousmane Touré, Auditor General; Mr. Sambou Wagué, former minister, Coordinator of Reforms under the Three-Year Action Plan, Mr. Alhassane Ag Hamed Moussa, former minister, National Director of Financial Control, Mr. Boubacar Ben Bouillé, National Director of the Treasury and Public Accounting, Mr. Robert Diarra, Director General of the Budget; Mr. Adama Sissouma, Director General of Local Governments; Mr. Ahmadou T. Haidara, Head of the Central Payroll Office; Mr. Alassane Maiga, Deputy National Director of Development Planning; Mr. Amara Traoré, Acting General Director of the National Local Government Investment Agency; Mr. Souleymane Traoré, Director General of Finance and Equipment (Ministry of Health); Mr. Chaka Bagayoko, Director General of Finance and Equipment (Ministry of National Education); Mr. Seydou Moussa Traore, Director General of the National Statistics Institute.

The mission had the opportunity to discuss its conclusions and recommendations with representatives of the various development partners, including Mr. Gilles Huberson, Ambassador of France to Mali, Mr. Paul Numa, Resident Representative of the World Bank, Mr. Giovanni Squadrito and his colleagues at the European Union office, and Mr. Peter d’Huys of the Belgian Embassy.

Finally, the mission would like to thank Mr. Anton Op de Beke, IMF Resident Representative and Mr. Bakary Traore, resident economist, for their generosity with their time and assistance in the organization of the mission.

Summary of Recommendations

Update

The long-established process for decentralization, as anchored in Mali is institutional framework, has delivered results over the years. In particular, the communes¹ have become pillars of the local sociocultural framework. For more than three decades, they have provided basic services, particularly in the education and health sectors, and somewhat initiated local development. Nevertheless, the lack of sufficient financial and human resources for local governments to handle their responsibilities has been a major impediment to local development and poverty reduction. Central government agencies deployed in the Malian hinterland, with little guidance and financing, was insufficient to boost local development. The question of decentralization has thus re-heated debates in the context of the Northern Mali crisis and its subsequent political and military instability.

Regionalization ambitions and risks

Since 2013, a new ambitious model is emerging. It is particularly ambitious although not fully defined. According to most recent known assumptions, it involves redrawing the map of the counties and regions and scaling up fiscal transfers to local governments to the tune of one third of the country’s budgetary revenue. In this context the plan is to(i) double or triple local budgets (depending on the option chosen) within three or four years, (ii) increase the number of regions from 8 to 20 (two of which are desert lands), and (iii) consolidate at the communal level. If not properly implemented, this “regionalization” phase entails risks:

• - If the new regions² are poorly defined or inconsistent, local management may result in a very unsuitable and inefficient use of resources.

• - If transfers to local governments are inadequately estimated, insufficient and unpredictable revenue to local budgets will lead to ineffective local policies with little economic and social impact, and potentially a loss of control on local debts.

• - If central government transfers are unsuited to local governments’ specific needs, it could increase local inequities, deplete the central government budget and yet not foster growth and development.

The approach proposed in this report:

• - Set an optimal administrative organization of the territory: this organization should aim at building consistent and sustainable local governments best suited to address local specific needs. In this context, the regions seem best suited to handle funds envisaged to be decentralized and large-scale development actions.

• - Optimize local government revenue through local taxation (although it will not alone cover all needs) and introduce an efficient (e.g. equitable, suited to the needs, transparent and sustainable) system of transfers from the central government.

• - Establish good financial governance: local management risks being chaotic and harmful without: strong accountability, central government support, and capacity-building for local officials.

List and Sequencing of Recommendations

List and Sequencing of Recommendations

Reform the system for the calculation of allocations	This involves applying a simple, equitable and predictable allocation formula based on the country’s economy in order to increase transparency and equity.	2016
Optimize local own resources	The objective is to focus local government resources on local development in order to trigger a virtuous circle of empowerment and local development.	2016–18
Sequence the regionalization phase	This involves avoiding a proliferation of local governments and focusing the reform on the region.	2015
Monitor the decentralization process	Establish a framework within the central government to prepare and follow-up with decentralization.	2015–18
Build capacities	Develop the capacities of officials in local governments and in central government local agencies for a consistent and effective public management.	2016–18
Consolidate the financial framework	Provide the central government local agencies with the means to fully perform financial oversight in the context of enhanced fiscal decentralization.	2016–18
Develop budgetary oversight	Provide tools for the detection and control of financial risks.	2016
Streamline and strenghten external audit	Expand the coverage and scope of ex post audit of local accounts and public management.	2015–18

View Table

List and Sequencing of Recommendations

Reform the system for the calculation of allocations	This involves applying a simple, equitable and predictable allocation formula based on the country’s economy in order to increase transparency and equity.	2016
Optimize local own resources	The objective is to focus local government resources on local development in order to trigger a virtuous circle of empowerment and local development.	2016–18
Sequence the regionalization phase	This involves avoiding a proliferation of local governments and focusing the reform on the region.	2015
Monitor the decentralization process	Establish a framework within the central government to prepare and follow-up with decentralization.	2015–18
Build capacities	Develop the capacities of officials in local governments and in central government local agencies for a consistent and effective public management.	2016–18
Consolidate the financial framework	Provide the central government local agencies with the means to fully perform financial oversight in the context of enhanced fiscal decentralization.	2016–18
Develop budgetary oversight	Provide tools for the detection and control of financial risks.	2016
Streamline and strenghten external audit	Expand the coverage and scope of ex post audit of local accounts and public management.	2015–18