A. Institutional Anchoring of Decentralization in Mali

2. Decentralization is anchored in the legal framework. The commitment to decentralization, which was expressed from the time of independence, was enshrined in the 1992 Constitution, which established freedom of administration of local governments as a principle.³ Since then, decentralization has been considered a safeguard for national unity and territorial integrity. The institutional framework is thus enshrined in the legislation and has been updated from time to time (Box 1). The 2014 administrative framework⁴ comprises of: 703 communes (e.g. villages in rural areas and townships in urban areas), 49 counties (cerdes), 8 regions (régions) and the District of Bamako, which is made up of 6 communes. All of these territorial units are set up as local governments (collectivités territoriales). Communal councilors, from among which the mayor is appointed, are directly elected by universal suffrage, and regional and county councilors are elected by electoral colleges from the levels of government immediately below (municipalities elect county councils, which in turn elect regional councils).

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Administrative Map of Mali

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

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3. The local governments participate in the governmental and legislative processes on a consultative basis. The 1992 Consultation established a unicameral system (one National Assembly), but also established a Local Government High Council made up of representatives of the local governments. Officially established in 2002, the High Council is consulted by the government on all issues relating to local and regional development policy, protection of the environment, and improvement of the quality of life of citizens in local communities. Although its opinion is only advisory, the High Council can make proposals to the government on its own initiative on any issue concerning the protection of the environment and improvement of the quality of life of citizens in local communities. The government is then required to present a draft law to the office of the National Assembly within 15 days of this referral by the High Council. Moreover, local elected officials are grouped into associations, whose purpose is to defend the interests of the local communities (associations of mayors, counties and regions of Mali, respectively).

4. Decentralization is a lever of local democracy, development and poverty reduction. Historically, decentralization has had two objectives in Mali: to expand the process of democratization and participation of the population in the management of public affairs and to promote local development by favoring the initiatives of the various civil society players and the creation of a framework controlled by the population organized where it lives. Thus, in February 2005, Mali adopted a National Decentralization Policy Paper, which defines the decentralization challenges for the period 2005-2014 and establishes a close link between decentralization and poverty reduction. The two central mechanisms for implementation of the policy paper are the National Local Government Support Program (PNACT) and the Institutional Development Program (PDI), which deal with decentralization and deconcentration⁵, respectively. More recently, in 2013, the poverty reduction strategy paper, which was re-updated by the transition government, affirms the principle of the expansion of decentralization and the transfer of additional resources to the local governments. On the basis of all of these strategy papers, operational objectives, which are the guidelines for the decentralization policy in Mali, have been developed: (i) national unity and territorial integrity; (ii) the freedom of administration of local governments; (iii) the respect of local characteristics; (iv) democratic management at the local level; (v) subsidiarity;⁶ and (vi) strengthening of contract management by the local governments.

B. Tight Control over Local Governments’ Freedom of Administration

5. The local governments in Mali are entitled to across-the-board general and specific responsibilities. The law⁷ assigns them a preeminent across-the-board role in economic and social development and the management of local public services. Their specific powers are established by the Local Government Code (Table 1).

Table 1:

Responsibilities of the Local Governments

Source: Law No. 2012–007 of February 7, 2012 establishing the Local Governments Code, Article 22 (communes), Article 97 (counties), and Article 164 (regions).

Table 1:

Responsibilities of the Local Governments

General Responsibilities – Local Governments
Budgets and local government accounts Development programs Management of land and property and the acquisition of assets Organization of rural production activities Protection of the environment Creation and management of local public services and organizations Works and supply contracts, leases and other agreements	Local taxation: establishment of fees for services and other fees, and determination of their level; establishment of taxes and other levies within the limits of the tax bases and maximum levels established by the law Loans and grants Application of the personnel regulations Twinning projects – cooperation Acceptance and refusal of gifts and legacies Administrative policing regulations
Specific Responsibilities (it should be noted that no hierarchy is established between the various decentralized levels; only the central government provides oversight over a local government, under defined and limited conditions)
Communes	Counties	Regions
Fairs and markets, sports, arts and culture		Alignment of development strategies and actions (communes, counties and central government)
Preschool, basic and non-formal education, vocational training and apprenticeships	General secondary education, vocational training and apprenticeships	Technical, vocational and specialized education, vocational training and apprenticeships
Health, public hygiene and sanitation	Health
Communal communications network, public transport and traffic plans	County communications network	Regional communications network
Rural and urban water management		Energy

Source: Law No. 2012–007 of February 7, 2012 establishing the Local Governments Code, Article 22 (communes), Article 97 (counties), and Article 164 (regions).

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Table 1:

Responsibilities of the Local Governments

General Responsibilities – Local Governments
Budgets and local government accounts Development programs Management of land and property and the acquisition of assets Organization of rural production activities Protection of the environment Creation and management of local public services and organizations Works and supply contracts, leases and other agreements	Local taxation: establishment of fees for services and other fees, and determination of their level; establishment of taxes and other levies within the limits of the tax bases and maximum levels established by the law Loans and grants Application of the personnel regulations Twinning projects – cooperation Acceptance and refusal of gifts and legacies Administrative policing regulations
Specific Responsibilities (it should be noted that no hierarchy is established between the various decentralized levels; only the central government provides oversight over a local government, under defined and limited conditions)
Communes	Counties	Regions
Fairs and markets, sports, arts and culture		Alignment of development strategies and actions (communes, counties and central government)
Preschool, basic and non-formal education, vocational training and apprenticeships	General secondary education, vocational training and apprenticeships	Technical, vocational and specialized education, vocational training and apprenticeships
Health, public hygiene and sanitation	Health
Communal communications network, public transport and traffic plans	County communications network	Regional communications network
Rural and urban water management		Energy

Source: Law No. 2012–007 of February 7, 2012 establishing the Local Governments Code, Article 22 (communes), Article 97 (counties), and Article 164 (regions).

6. The draft Agreement for Peace and Reconciliation in Mali resulting from the Algiers process (February 25, 2015 version) protects the preeminent role of the regions in the areas of economic, social and cultural development by giving them a new planning role. It also grants them broader powers in the areas of local development, agriculture, livestock, fisheries, forestry management, transport, commerce, industry, crafts, tourism and interregional transport, as well as in the creation and management of basic local equipment and social services (basic education and vocational training, health, environment, culture, road and communications infrastructure at the regional level, energy, water and sanitation). Finally it recognizes their capacity to introduce and apply their own taxes and revenues, within limitations set by the central government.

7. These powers are exercised under the oversight of the central government. Oversight of the local governments is provided by the central government and its representatives at the local level⁸ (Table 2). It consists of a twofold function of assistance/advice and legality check (e.g. compliance of local governments’ acts with the legislation). In principle, the assistance/advice is provided at the request of a local government, but it can in practice be provided on the initiative of the oversight authority.

Table 2:

Organization of the Oversight of the Local Governments

Source: Ministry of Territorial Administration and Local Governments, General Directorate of Local Governments, “50 questions et réponses sur la décentralisation au Mali” [50 Questions and Answers on Decentralization in Mali], April 2010.

Table 2:

Organization of the Oversight of the Local Governments

Oversight authority	Level where located:	Legality check on:	Assists and advises the:
Minister responsible for local governments	National	Regions and District of Bamako
Governor	Regional and District of Bamako	Counties	President of the Regional Assembly Regional Assembly President of the District Council Office District Council
Prefect	County	Communes	President of the County Council County Council
Sub-Prefect	Communal	Communes	Mayor Communal Council
Deliberations Subject to the Prior Agreement of the Oversight Authority
– Creation and method of management of regional, county and communal public services; – Personnel management procedures; – Local development at the regional, county and communal levels; land-use plans (communes); – Purchase and sale of government assets; – Management of forestry, fauna and fisheries resources; – Setting of the rates for taxes, levies and charges; – Budgets and budget execution accounts; – Acceptance and refusal of gifts, grants and legacies; – Loans and guarantees or sureties; – Equity investments; – Regulations in the area of administrative policing; – Internal regulations; – City-twinning projects in cooperation with other Malian or foreign local governments.

Source: Ministry of Territorial Administration and Local Governments, General Directorate of Local Governments, “50 questions et réponses sur la décentralisation au Mali” [50 Questions and Answers on Decentralization in Mali], April 2010.

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Table 2:

Organization of the Oversight of the Local Governments

Oversight authority	Level where located:	Legality check on:	Assists and advises the:
Minister responsible for local governments	National	Regions and District of Bamako
Governor	Regional and District of Bamako	Counties	President of the Regional Assembly Regional Assembly President of the District Council Office District Council
Prefect	County	Communes	President of the County Council County Council
Sub-Prefect	Communal	Communes	Mayor Communal Council
Deliberations Subject to the Prior Agreement of the Oversight Authority
– Creation and method of management of regional, county and communal public services; – Personnel management procedures; – Local development at the regional, county and communal levels; land-use plans (communes); – Purchase and sale of government assets; – Management of forestry, fauna and fisheries resources; – Setting of the rates for taxes, levies and charges; – Budgets and budget execution accounts; – Acceptance and refusal of gifts, grants and legacies; – Loans and guarantees or sureties; – Equity investments; – Regulations in the area of administrative policing; – Internal regulations; – City-twinning projects in cooperation with other Malian or foreign local governments.

Source: Ministry of Territorial Administration and Local Governments, General Directorate of Local Governments, “50 questions et réponses sur la décentralisation au Mali” [50 Questions and Answers on Decentralization in Mali], April 2010.

8. Technical support structures for the local governments are proliferating. At the central level, units responsible for the design, coordination and implementation of decentralization have been set up under the coordination of the Ministry of Territorial Administration and Local Governments. Also at the central level, decentralization and deconcentration support units (CADD) were established in 2008 in each ministerial department The achievements of these support units are slight with the notable exception of health and education, where, under their leadership, significant transfers of personnel and the related salaries have been made from the central government to the local governments. The representative of the central government at the local level provides a support and advisory function and the deconcentrated units (services déconcentrés - central government units located in regions, counties and communes) provide technical support to the local governments. Moreover, liaison and coordination officials have been put in place to monitor and assess the technical support and also to coordinate the development actions at the various levels: the National Local Government Technical Support Steering Committee (CNO); the Regional Development Action Steering, Coordination and Monitoring Committees (CROCSADs); the Local Development Action Steering, Coordination and Monitoring Committees (CLOCSADs); and the Communal Development Action Steering, Coordination [and Monitoring] Committees (CCO[C]SADs). A permanent mechanism for financing technical support has been established via the technical support allocation (DAT) in the context of the National Local Government Support Fund (FNACT) implemented by the National Local Government Investment Agency (ANICT).

9. A number of factors limit the implementation of local governments’ policies. These limitations have been observed in the field and recognized by local and central governments’ representatives. Limitations are mainly legal and financial/technical in nature.

• Legal limitations. The existing legal framework that should spell out the details on the responsibilities and resources transferred to the local governments is incomplete. The only sectors covered by the framework are: education, health and water management in 2002, social development and solidarity in 2012, gender equality policy in 2014 (as of yet the latter two executive orders have not been implemented), and social development, sanitation and commerce in the summer of 2014. As well, regulations ruling the establishment and management of local government owned estate have not been prepared. Finally, the central government continues to implement externally financed projects (in the areas of health and water management in particular).

• Technical/financial limitations. Central government transfers still constitute the main funding for local governments in Mali, while local governments’ own revenue is weak compared with their financing needs to cover current and capital expenditures. Technical assets and human resources have been limitedly transferred to local governments; and the support they receive from the central government is hampered by the insufficient degree of deconcentration of central agencies.

10. Optimization of local resources is limited. Local governments’ policies are sometimes ill-suited to the local and cultural needs-which can lead to tax avoidance, and further reduce the local governments’ own resources, while central government transfers remain limited and sometimes unpredictable. As a result, resource scarcity is further amplified and the local budgets scarcely cover the needs of local communities.

C. Insufficient Decentralized Resources

11. Incomplete fiscal decentralization drives to poor local budget structures. The mission compiled the financial data available at the National Treasury department into a local government fiscal statistics table (Table 3). The purpose of this table is to assess the structure of revenue, expenditure and financing for all local governments combined. The main lessons to be learned from this table are analyzed below with regards to resources, expenditures and net borrowing.

Table 3:

Table of Local Government Fiscal Operations

Table 3:

Table of Local Government Fiscal Operations

(in XOF billion)			2011		2012		20132
			Forecast	Est.3	Forecast	Est.	Forecast	Est.
Total revenue			214.7	115.0	200.0	104.9	233.2	124.1
	Operating expenses		114.8	83.3	109.5	79.4	145.8	97.8
		Own resources	32.0	16.1	28.9	14.1	48.1	21.7
		Tax revenue	23.0	12.6	19.7	11.2	33.2	17.4
		Nontax revenue	9.0	3.5	9.3	2.9	15.0	4.3
		Transfers received	82.8	67.2	80.2	65.1	96.0	75.9
	Investment revenues		100.3	19.3	87.2	10.8	90.4	8.8
		Allowances and subsidies		17.1	77.1	8.8	78.5	5.2
		Loans		0.0	1.2	0.1	0.8	0.0
Total expenditure			215.2	96.1	206.2	87.7	258.1	111.0
	Operating expenses,		115.3	73.3	124.5	74.9	162.3	102.4
	Capital spending		99.9	22.8	81.7	12.7	95.8	8.6
Overall balance			−0.5	18.9	−6.2	17.3	−24.9	13.1
	Operating balance		−0.5	10.0	−15.0	4.4	−16.5	−4.6
	Operating balance (excluding transfers)		−83.3	−57.2	−95.6	−60.8	−114.1	−80.7
	Investment balance		0.4	−3.4	5.5	−1.9	−5.3	0.1

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Table 3:

Table of Local Government Fiscal Operations

(in XOF billion)			2011		2012		20132
			Forecast	Est.3	Forecast	Est.	Forecast	Est.
Total revenue			214.7	115.0	200.0	104.9	233.2	124.1
	Operating expenses		114.8	83.3	109.5	79.4	145.8	97.8
		Own resources	32.0	16.1	28.9	14.1	48.1	21.7
		Tax revenue	23.0	12.6	19.7	11.2	33.2	17.4
		Nontax revenue	9.0	3.5	9.3	2.9	15.0	4.3
		Transfers received	82.8	67.2	80.2	65.1	96.0	75.9
	Investment revenues		100.3	19.3	87.2	10.8	90.4	8.8
		Allowances and subsidies		17.1	77.1	8.8	78.5	5.2
		Loans		0.0	1.2	0.1	0.8	0.0
Total expenditure			215.2	96.1	206.2	87.7	258.1	111.0
	Operating expenses,		115.3	73.3	124.5	74.9	162.3	102.4
	Capital spending		99.9	22.8	81.7	12.7	95.8	8.6
Overall balance			−0.5	18.9	−6.2	17.3	−24.9	13.1
	Operating balance		−0.5	10.0	−15.0	4.4	−16.5	−4.6
	Operating balance (excluding transfers)		−83.3	−57.2	−95.6	−60.8	−114.1	−80.7
	Investment balance		0.4	−3.4	5.5	−1.9	−5.3	0.1

Limited resources and a high degree of dependence on the central government

12. Local government resources are in principle diversified. By law⁹ they consist of: tax resources (central government taxes transferred to the local governments, direct and indirect local government taxes and levies); various types of revenue (agricultural products, financial revenues, income from government lands, fees); fiscal resources, consisting of allocations and special subsidies from the central government to the local governments; authorized loans, which are intended exclusively for the financing of investment; and other resources, particularly grants from external partners.

13. In practice, central government transfers make up the largest proportion of resources. As illustrated by Chart 2, the share of own resources in the operating and capital budgets of the local governments is very limited. Central government budgetary allocations still make up the largest proportion of resources. Own resources of the local governments, although trending slightly upward, remain very meager. Since 2007, local government own revenues (particularly nontax revenues) have increased significantly but remain limited and insufficient to cover the operating expenses of local governments.

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Operating and Capital Revenues of the Local Governments

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Source: DNTCP, year-end treasury accounts of the local governments aggregated at the regional level for fiscal year 2012 (fiscal year 2010 for the northern regions).

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14. Local government own resources are limited. Their own resources are broken down into extremely diverse categories of revenue (tax and nontax). However, the corollary of that diversity is that revenue levels are very low. On the tax revenue side, there are no less than 21 different taxes and levies (Chart 3), of which 3 (the business license tax, the local development tax, and the tax on wages and salaries) represent 77.3 percent of the total revenues collected in 2012, while 12 others¹⁰ represent just 3.4 percent of this total. The findings are similar for nontax revenues (revenues from land services and miscellaneous sales). More than 80 percent of nontax revenues collected by the local governments related to 13 categories of revenue in 2012, while 30 other categories represented 1 percent or less of total nontax revenues. This fragmentation is a source of complexity and bureaucracy in the collection of revenues and helps to explain the low productivity of local governments’ own resources.

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Own Resources of the Local Governments

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Source: DNTCP, year-end treasury accounts of the local governments aggregated at the regional level for 2012 (2011 and 2012 amounts do not include the Northern regions).

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15. The local taxation system is cumbersome. There is some disorganization in the process for the assessment and collection of local taxes and levies. The weaknesses mentioned most often by the staff interviewed are poor management of the tax rolls, insufficient coordination between units, insufficient material, human and financial resources in the assessment and collection units, contradictory role¹¹ of elected officials in the collection of local taxes, insufficient motivation of officials, and tax avoidance.

16. The performance of the local taxation system is weak. Total revenues (own resources and transfers from the central government) of the local governments were estimated at 12 percent of the central government budget (excluding grants) and just 2 percent of GDP during the period 2011–13 (Chart 4). This revenue structure reveals two major weaknesses: a high level of dependence of the local governments on transfers from the central government and the limited credibility of revenue projections.

• A high level of dependence on transfers from the central government: The revenues of the local governments consist largely of transfers and grants from the central government (1.3 percent and 7.2 percent of GDP and the central government budget, respectively).

• The limited credibility of revenue projections: Local government budget revenue, and consequently expenditure execution, averaged only 48.2 percent during the period 2011–13 (Table 4).

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Share of Local Resources (% GDP and % Budget¹²)

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

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Table 4:

Budget Execution Rates 2011–13

Source: DNTCP, year-end treasury accounts of the local governments aggregated at the regional level for fiscal year 2012 (2011 and 2012 amounts do not include the Northern regions).

Table 4:

Budget Execution Rates 2011–13

		Execution Rates (%)
		2011	2012	2013
Revenue		53.5	52.5	53.2
	Operating	72.6	72.5	67.1
	Capital	19.3	12.4	9.7
	Expenditure	44.6	42.5	43.0
	Operating	63.6	60.2	63.1
	Capital	22.8	15.6	9.0

Source: DNTCP, year-end treasury accounts of the local governments aggregated at the regional level for fiscal year 2012 (2011 and 2012 amounts do not include the Northern regions).

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Table 4:

Budget Execution Rates 2011–13

		Execution Rates (%)
		2011	2012	2013
Revenue		53.5	52.5	53.2
	Operating	72.6	72.5	67.1
	Capital	19.3	12.4	9.7
	Expenditure	44.6	42.5	43.0
	Operating	63.6	60.2	63.1
	Capital	22.8	15.6	9.0

Source: DNTCP, year-end treasury accounts of the local governments aggregated at the regional level for fiscal year 2012 (2011 and 2012 amounts do not include the Northern regions).

Expenditure with a limited focus on local development.

17. The local governments spend current expenditures mainly. In fiscal year 2012, the expenditures of the local governments totaled approximately XOF 95 billion (excluding the Northern regions, for which data are not available), or 1.8 percent of GDP. As illustrated by Chart 5, expenditure executed by the local governments comprises mainly current expenditures, among which payroll expenditures represent between 60 and 80 percent of the total, depending on the region. By comparison, capital expenditures by the local governments are small (see paragraph 18).

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Current Revenue and Expenditures of the Local Governments

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Source: DNTCP, year-end treasury accounts aggregated at the regional level for fiscal year 2012 (fiscal year 2010 for the Northern Gao, Kidal and Timbuktu regions).

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18. The central government remains predominant in the execution of expenditures at the local level. On the one hand, the central government finances most of the expenditures of the local governments by means of transfers and budgetary allocations paid in compensation for the transferred responsibilities. On the other, the central government itself executes a significant proportion of expenditures at the local level through deconcentrated units and central government policies (particularly multiregional projects).

19. Local budgets for investment are extremely small. Capital expenditures totaled a little over XOF 17 billion in 2012 (excluding the Northern regions), which is consistent with the very limited resources available. With considerable variation by region, capital expenditures executed by the local governments in 2012 (2010 for the Northern regions) essentially consisted of construction, infrastructure works, and equipment purchases (Chart 6). This emphasis on operating expenditure to the detriment of capital expenditure may be the cause but also the consequence of underdeveloped local taxation – the low level of local tax resources leaves little latitude for investment and the very low level of investments hinders the promotion of regional development, which would generate additional resources.

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Relative Shares of Current and Capital Expenditures

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Source: DNTCP, year-end treasury accounts of the local governments.

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20. Local governments are at risks with, yet to be quantified, financial debt. Treasury accountants do not report local government debt, although this possibility does exist. The accounts of the local governments (Table 3) record recurring deficits, and local governments can occasionally borrow (against investment projects), build up payments or wage arrears (which is accounted as a debt), and even execute extra-budgetary expenditures against informal loans, outside the purview of the National Treasury.

A. Local Government Financial Needs to Fulfill Their Responsibilities

25. Fiscal decentralization implies transferring responsibilities and funds accordingly. The law establishes the principle of a financial transfer that is proportional to and simultaneous with the transfer of responsibilities.¹⁴ In other words, the central government should simultaneously transfer responsibilities and funds in an amount equivalent to what it is actually spending on those responsibilities.

26. One can identify costs of local policies currently lying on the central government and local governments and break them down by major area of responsibility. There is no precise deconcentration and decentralization plan with costs broken down by ministry or/and central government expenditures. However, existing budget execution data provide a rough assessment of the cost of local policies and, consequently, the financial burden likely to be decentralized. The central government budget is based on elementary cost centers called “functional units”. Each functional unit bears a code number that makes it possible to identify the nature; the sector; and the level of execution of the expenditure (see Annex 1 - Central Government Budget Analysis by Functional Unit). The central government expenditures for fiscal year 2014 were thus distributed as follows (Table 6):

Table 6:

2014 Central Government Budget, Expenditures by Intervention Sector

Source: DG Budget, 2014 budget execution data, and IMF staff calculations.

Table 6:

2014 Central Government Budget, Expenditures by Intervention Sector

		Local levels
2014 Central government budget, amounts assessed in CFAF million	Central level	Deconcentrated units	Transfers to local governme	Externally financed projects	Total	% total
	51,473	−	−	8,004	59,477	4.7%
Defense, public order and security	107,760	6,395	−	3,798	117,954	9.3%
General and financial administration	417,364	20,431	14,569	19,923	472,288	37.4%
Education, training and research	62,293	45,560	127,752	8,409	244,015	19.3%
Culture, sports and leisure	15,133	948	−	12,756	28,839	2.3%
Health and social action	65,133	16,924	4,370	6,903	93,332	7.4%
Administration and infrastructure	58,291	4,622	−	32,408	95,322	7.5%
Production and commerce	2,833	7,016	−	32,555	52,405	4.1%
Other uses	100,108	−	−	−	100,108	7.9%
Total 2014 central gov’t budget	890,392	101,898	146,691	124,760	1,263,742
% total	70.50%	8.10%	11.60%	9.90%	100%

Source: DG Budget, 2014 budget execution data, and IMF staff calculations.

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Table 6:

2014 Central Government Budget, Expenditures by Intervention Sector

		Local levels
2014 Central government budget, amounts assessed in CFAF million	Central level	Deconcentrated units	Transfers to local governme	Externally financed projects	Total	% total
	51,473	−	−	8,004	59,477	4.7%
Defense, public order and security	107,760	6,395	−	3,798	117,954	9.3%
General and financial administration	417,364	20,431	14,569	19,923	472,288	37.4%
Education, training and research	62,293	45,560	127,752	8,409	244,015	19.3%
Culture, sports and leisure	15,133	948	−	12,756	28,839	2.3%
Health and social action	65,133	16,924	4,370	6,903	93,332	7.4%
Administration and infrastructure	58,291	4,622	−	32,408	95,322	7.5%
Production and commerce	2,833	7,016	−	32,555	52,405	4.1%
Other uses	100,108	−	−	−	100,108	7.9%
Total 2014 central gov’t budget	890,392	101,898	146,691	124,760	1,263,742
% total	70.50%	8.10%	11.60%	9.90%	100%

Source: DG Budget, 2014 budget execution data, and IMF staff calculations.

27. Transfers to the local governments already amount to 11.6 percent of the central government budget (Table 7). These transfers, which total XOF 146.7 billion, concern the education and health sectors and, to a lesser extent, general administration. Added to these amounts is an allocation to the National Local Government Support Fund (FNACT), which is primarily earmarked to local investments and related operating expenditures. These transfers aim essentially at covering payroll expenditures related to education and health (87.1 percent of the total amounts transferred) and other current expenditures (Chart 7).

Table 7:

Financial Transfers from the Central Government to the Local Governments

Source: DGB, budget execution data for 2014, reprocessing by IMF staff.

Table 7:

Financial Transfers from the Central Government to the Local Governments

2014 Central Government Budget Amounts in XOF million	Sector 3 – General and Financial Administration	Sector 4 – Education, Training and Research	Sector 6 – Health and Social Action	Total 2014 Central Government Budget
Transfers to local governments	810	127,752	4,370	132,933	10.5%
ANICT allocations to local governments	13,758			13,758	1.1%
Local government total	14,568	127,752	4,370	146,690	11.6%
(Memorandum): central govt. budget	472,289	244,015	93,332	1,263,742

Source: DGB, budget execution data for 2014, reprocessing by IMF staff.

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Table 7:

Financial Transfers from the Central Government to the Local Governments

2014 Central Government Budget Amounts in XOF million	Sector 3 – General and Financial Administration	Sector 4 – Education, Training and Research	Sector 6 – Health and Social Action	Total 2014 Central Government Budget
Transfers to local governments	810	127,752	4,370	132,933	10.5%
ANICT allocations to local governments	13,758			13,758	1.1%
Local government total	14,568	127,752	4,370	146,690	11.6%
(Memorandum): central govt. budget	472,289	244,015	93,332	1,263,742

Source: DGB, budget execution data for 2014, reprocessing by IMF staff.

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Contribution of the Regions to the Central Government Budget¹⁵

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Sources: Treasury units, reprocessing by IMF staff.

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28. Local expenditure (deconcentrated and decentralized units) represents one fourth of the central government budget. Overall, central government spending for local levels amounts to 24 percent of expenditures executed in 2014, or XOF 302.6 billion (Table 8 and Annex 2). This central government spending for the benefit of local governments includes direct and indirect transfers (via the FNACT). In addition to the latter spending: deconcentrated units execute a large share of central government expenditures in Regions or in Counties, including investment projects; Local state owned enterprises receive government transfers; and Cross-sector projects, funded by the central government, are implemented locally and accrued as central government funding for local development.

Table 8:

Central Government Expenditures for the Benefit of the Local Level

Source: DGB, budget execution data for 2014, reprocessing by IMF staff.

Table 8:

Central Government Expenditures for the Benefit of the Local Level

2014 Central government budget, Amounts assessed in XOF millions			Total	% central gov’t budget
Total expenditures at the local level			302,619	23.9%
	Deconcentrated units		101,899	8.1%
		Deconcentrated levels	91,738	7.3%
		Local level legal entities	10,161	0.8%
	Local governments		146,691	11.6%
		Transfers to local governments	132,933	10.5%
		ANICT allocations to local governments	13,758	1.1%
	Externally financed projects		54,029	4.3%
		Local level projects	37,277	2.9%
		Multi-sector projects	16,752	1.3%

Source: DGB, budget execution data for 2014, reprocessing by IMF staff.

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Table 8:

Central Government Expenditures for the Benefit of the Local Level

2014 Central government budget, Amounts assessed in XOF millions			Total	% central gov’t budget
Total expenditures at the local level			302,619	23.9%
	Deconcentrated units		101,899	8.1%
		Deconcentrated levels	91,738	7.3%
		Local level legal entities	10,161	0.8%
	Local governments		146,691	11.6%
		Transfers to local governments	132,933	10.5%
		ANICT allocations to local governments	13,758	1.1%
	Externally financed projects		54,029	4.3%
		Local level projects	37,277	2.9%
		Multi-sector projects	16,752	1.3%

Source: DGB, budget execution data for 2014, reprocessing by IMF staff.

29. In the long term, the cumulative resources of the local governments could amount to XOF 264 billions, half of which have already been transferred to them. If the central government disengages from policies overlapping with local governments’ and if it transfers all funds related to those policies, the cumulative amount of transfers to local governments would be close to the total amount of local expenditures (Table 9). Yet, there are two caveats in this reasoning:

• Some expenditures do not seem suitable for decentralization and should be executed within the central government budget This is the case in particular for allocations to legal entities (such as the Office du Niger), sovereign expenditures, and spending on oversight and auditing activities carried out by central and deconcentrated units of the central government.

• Additional expenditures could be decentralized along with the new responsibilities to be assigned to the local governments for the implementation of public policies in the areas of culture, sports and leisure, administration and infrastructure development (roads and rural electrification), and production and commerce.

Table 9:

Possible Transfers to the Local Level

Source: DGB, budget execution data for 2014, reprocessed by IMF staff.

Table 9:

Possible Transfers to the Local Level

2014 Central government budget, amounts assessed in CFAF million		Current transfers	New transfers			Total	% of Central Govern
			Deconcentrated units	Projects
				Local level	Multisectoral
	Total transfers	146,691	6 4,911	3 6,297	1 6,040	2 63,938	20.9%
	Sovereignty services	−	−	−	−	−
	Defense, public order and security	−	−	−	−	−
	General and financial administration	14,569	−	−	514	1 5,083	1.2%
	Education, training and research	127,752	40,254	864	571	1 69,441	13.4%
	Culture, sports and leisure	−	948	1,022	670	640	0.1%
	Health and social action	4,370	13,467	1,625	199	1 9,661	1.6%
	Administration and infrastructure	−	4,531	12,779	7,886	2 5,196	2.0%
	Production and commerce	−	5,709	20,007	6,199	3 1,916	2.5%
	Other uses	−	−	−	−	−
	Memorandum, central gov’t, 2014 budget					1,263,742

Source: DGB, budget execution data for 2014, reprocessed by IMF staff.

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Table 9:

Possible Transfers to the Local Level

2014 Central government budget, amounts assessed in CFAF million		Current transfers	New transfers			Total	% of Central Govern
			Deconcentrated units	Projects
				Local level	Multisectoral
	Total transfers	146,691	6 4,911	3 6,297	1 6,040	2 63,938	20.9%
	Sovereignty services	−	−	−	−	−
	Defense, public order and security	−	−	−	−	−
	General and financial administration	14,569	−	−	514	1 5,083	1.2%
	Education, training and research	127,752	40,254	864	571	1 69,441	13.4%
	Culture, sports and leisure	−	948	1,022	670	640	0.1%
	Health and social action	4,370	13,467	1,625	199	1 9,661	1.6%
	Administration and infrastructure	−	4,531	12,779	7,886	2 5,196	2.0%
	Production and commerce	−	5,709	20,007	6,199	3 1,916	2.5%
	Other uses	−	−	−	−	−
	Memorandum, central gov’t, 2014 budget					1,263,742

Source: DGB, budget execution data for 2014, reprocessed by IMF staff.

B. Revenues Available in the Regions

30. The revenue-based approach aims at assessing the sustainability of decentralization. It involves providing the regions with funds equivalent to the revenues that they can generate. This approach may trigger a virtuous circle in which local economy correlates with local revenue, which in turn stimulates local development. The logic of this approach advocates that the amount of resources transferred (whatever the terms and conditions) be equivalent to the revenues (local and national taxes, fees and other revenues) raised in local governments constituencies.

31. Revenue collected in regions and sent to the central government budget vary considerably. Chart 7 shows the tax and nontax revenue contribution of each region to the central government budget. During the period 2007-13, the District of Bamako contributed 83 percent (tax and nontax revenues) of the central government budget on average, despite a slight decline in recent years. Less than 1 percent of central government budget revenues come from the Northern regions (Gao, Kidal and Timbuktu). The Kayes, Koulikoro and Sikasso regions contribute 6, 3 and 5 percent of central government revenues, respectively.

32. Although it varies significantly across the country, the revenue collected locally amounts to one fifth of Mali domestic revenue. The structure of local and national revenues is highly asymmetric, with the bulk of collections being concentrated in Bamako (Table 10). Nonetheless, all of the revenues collected by the national Treasury outside Bamako represented approximately 19 percent on average during the period 2011–13. These revenues come from taxation (national and local taxes and levies collected in the regions) and other revenues (fees for services provided, other nontax fees, revenues from government lands and public assets).

Table 10:

Structure of Local and National Revenues

Sources: Treasury staff, reprocessing by mission.

Table 10:

Structure of Local and National Revenues

(in CFAF billion unless otherwise specified)				2011	2012	2013
				Est.3	Est.	Est.
Local and national government revenues				827.7	891.1	920.8
	Revenues collected outside Bamako			161.8	164.4	177.5
		Own revenues of local governments, exc. Bamako*		10.2	11.5	14.7
			Tax revenues	9.8	9.5	12.1
			Nontax revenues	0.4	2.0	2.6
		National revenues, collected outside Bamako		151.6	152.9	162.8
			Tax revenues	149.7	151.8	161.1
			Nontax revenues	1.9	1.2	1.7
	Recettes percues à Bamako			665.9	726.7	743.3
		Own revenues of the District of Bamako*		5.9	2.6	7.1
			Tax revenues	2.8	1.7	5.3
			Nontax revenues	3.1	0.9	1.7
		National revenues, collected outside Bamako		660.0	724.1	736.3
			Tax revenues	621.2	665.9	693.4
			Nontax revenues	38.8	58.2	42.9
Revenues collected outside Bamako/total				19.5%	18.5%	19.3%
Bamako own revenues/national revenues				0.9%	0.4%	1.0%
Own revenues/national revenues exc. Bamako				6.7%	7.5%	9.0%

Sources: Treasury staff, reprocessing by mission.

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Table 10:

Structure of Local and National Revenues

(in CFAF billion unless otherwise specified)				2011	2012	2013
				Est.3	Est.	Est.
Local and national government revenues				827.7	891.1	920.8
	Revenues collected outside Bamako			161.8	164.4	177.5
		Own revenues of local governments, exc. Bamako*		10.2	11.5	14.7
			Tax revenues	9.8	9.5	12.1
			Nontax revenues	0.4	2.0	2.6
		National revenues, collected outside Bamako		151.6	152.9	162.8
			Tax revenues	149.7	151.8	161.1
			Nontax revenues	1.9	1.2	1.7
	Recettes percues à Bamako			665.9	726.7	743.3
		Own revenues of the District of Bamako*		5.9	2.6	7.1
			Tax revenues	2.8	1.7	5.3
			Nontax revenues	3.1	0.9	1.7
		National revenues, collected outside Bamako		660.0	724.1	736.3
			Tax revenues	621.2	665.9	693.4
			Nontax revenues	38.8	58.2	42.9
Revenues collected outside Bamako/total				19.5%	18.5%	19.3%
Bamako own revenues/national revenues				0.9%	0.4%	1.0%
Own revenues/national revenues exc. Bamako				6.7%	7.5%	9.0%

Sources: Treasury staff, reprocessing by mission.

33. Own revenues of the District of Bamako are comparatively low and could improve. Government officials mention numerous difficulties in levying taxes within the district. Collection of per capita taxes (such as the regional and local development tax) is specifically difficult given taxpayer mobility. The ratio comparing the amount of local taxation to national taxation is significantly lower in the district (Table 10). This suggests there is room for improvement. Ceteris paribus, taxation in the district could improve by a factor of 1 to 7 to reach the (admittedly low) level achieved in the regions.

34. Under this approach, tax collected locally amounts some XOF 210 billion. Would the government redistribute local revenue collected in regions across the country some XOF 210 billion would be transferred to the local governments. This amount comprises of: (i) XOF 30 billion for the district, provided it improve its tax collection performance through productivity gains or a change in tax bases and rates; and (ii) XOF 177 billion, or the equivalent of all taxes collected in the regions.

C. Threshold for Triggering a Development Dynamic

35. The development dynamic in the regions has stagnated over the past decade. A number of local development indicators show that the positive effects of decentralization have been mitigated or have been in relative stagnation during the past decade:

• Poverty (Chart 8) - Three times as many individuals live below the poverty threshold in rural areas and their number is declining much less rapidly than in urban areas (between 2001 and 2010, poverty declined by 40 percent in cities and 19 percent in rural areas).

• Human development (Chart 9) – The improvement curve of the human development index, most of the components of which depend on the delivery of local services,¹⁶ has stagnated over the past nine years. Between 2007 and 2012, Mali’s ranking deteriorated from 175^th to 182^nd in the world.

• User satisfaction with communal services (Table 11) – According to a 2014 survey conducted by the United Nations Development Program (UNDP), respondents expressed excellent feedback about the construction of primary schools but a much more mixed sense of satisfaction for other local services.

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Poverty

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Source: 2014 World Bank Report, cartography of poverty in Mali

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Human Development Index

Citation: IMF Staff Country Reports 2015, 287; 10.5089/9781513515076.002.A001

Source: UNDP/ World Human Development Report (WHDR).

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Table 11:

Degree of Satisfaction with the Quality of the Decentralized Services

Source: UNDP, 2014 National Human Development Report, decentralization study, current situation and outlook.

Table 11:

Degree of Satisfaction with the Quality of the Decentralized Services

	Very satisfied	Somewhat satisfied	Somewhat dissatisfied	Very dissatisfied	No opinion
Building of schools for the the first years of basic education	21.80%	50.80%	16.90%	8.60%	1.80%
Quality of teaching in the the first years of basic education	10.50%	39.10%	21.50%	24.30%	4.60%
Building of community health centers	17.20%	37.50%	30.50%	13.20%	1.50%
Quality of care at such centers	11.10%	44.30%	31.10%	11.70%	1.80%
Management of drinking water sources by the commune	16.00%	32.00%	35.10%	15.70%	1.20%

Source: UNDP, 2014 National Human Development Report, decentralization study, current situation and outlook.

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Table 11:

Degree of Satisfaction with the Quality of the Decentralized Services

	Very satisfied	Somewhat satisfied	Somewhat dissatisfied	Very dissatisfied	No opinion
Building of schools for the the first years of basic education	21.80%	50.80%	16.90%	8.60%	1.80%
Quality of teaching in the the first years of basic education	10.50%	39.10%	21.50%	24.30%	4.60%
Building of community health centers	17.20%	37.50%	30.50%	13.20%	1.50%
Quality of care at such centers	11.10%	44.30%	31.10%	11.70%	1.80%
Management of drinking water sources by the commune	16.00%	32.00%	35.10%	15.70%	1.20%

Source: UNDP, 2014 National Human Development Report, decentralization study, current situation and outlook.

36. There is a threshold as of which fiscal decentralization brings favorable outcomes. A recent study¹⁷ based on international examples correlates development indicators with a decentralization coefficient (decentralized resources / central government tax revenues) and analyzes the effect of decentralization on the favorable outcomes expected. These outcomes are measured in terms of statistics (schooling, access to facilities, connectivity, etc.). This study shows that below a certain threshold, decentralization does not have favorable outcomes and can even negatively affect the level of development.

37. The mission applied this method to Mali using some available indicators, such as basic education (repeater rate and food supply at school) and income poverty. This correlation model yields the following findings:

• During the period 2001-09, decentralized resources represented 3.8 percent of the tax revenues of the central government on average, but they vary by region.

• The effects of decentralization seem still to be mixed in terms of the quality of local school services - the repeater rate has been steadily declining over the period but food supply has not improved.

• The lower the level of decentralized resources, the lower the level of income poverty.

38. This situation varies by region. The levels of decentralization and local development are extremely varied, depending on the region, and the relative attractiveness of the regions also varies considerably. The demographic attractiveness of the Southern regions and the District of Bamako is significantly higher, and the output of these regions is also greater:¹⁸ Timbuktu, Gao and Kidal generate just 5 percent of national GDP, the other regions 52 percent, and the capital city the remaining 43 percent. Nonetheless, in addition to the efforts made vis-à-vis the local governments, poverty is still highly dependent on the social way of life, the agrarian or industrial production models, the average level of education, and security.¹⁹

39. To trigger a positive dynamic, decentralized allocations must be increased to approximately XOF 180 billion. Projections done using a simple econometric model (Annex 2) at an aggregated level show that to generate favorable outcomes, decentralization requires an increase in transfers of financial resources to the local governments. Poverty reduction actions alone require a slightly higher increase in the resources of the local governments.

A. Protecting the Stability of the Macro fiscal Framework

43. Malian government self-assigned objective is to successfully complete fiscal decentralization within a few years. As indicated above, the government’s objectives are part of both the Inter-Malian Inclusive Dialogue and the growth and poverty reduction strategy. The timetable set for achieving these objectives is ambitious:

• Transfer of 30 percent of “central government revenues”²⁰ by 2018;

• Overhaul of local government map by 2017;

• Transfer of staff from deconcentrated units to local governments.

44. It is possible, based on these hypotheses, to develop an indicative financial trajectory. To do this, the mission used the assumptions included in Box 6.

45. Fiscal decentralization involves costs that must be kept under control. The objective of decentralizing 30 percent of fiscal revenues by 2018 implies an average annual increase of transfers of XOF 76 billion over the period 2016-18. This increase in budgetary allocations to the decentralized levels of government reflects a 38 percent increase in transfers on average through to 2018. Table 12 shows a projection of these costs under the following three scenarios:

• In a “sustainable scenario” (i.e., costs that are sustainable for the central government budget), the central government transfers exactly the financial and human resources corresponding to the transfers of responsibilities. Under this hypothesis, transfers of expenditures (toward the local governments) are accompanied by savings (for the central government) of an almost equivalent amount and some slight additional costs resulting from the creation of the new local governments (11 regional councils, or an increase of approximately 2 percent in the operating expenditures, including payroll, of the local governments). These additional costs, totaling some 3 percent of the central government budget, should be absorbed by the natural progression of central government revenues.

• In a “tighter scenario” (i.e., costs that can be absorbed by significant gains in the productivity of local taxation), the government is not able to make a one-on-one transfer of the necessary human resources to the subnational government staff for the operation of the local governments. It must therefore retain excess civil servants,²¹ while granting the local governments the necessary appropriations for implementing decentralization. These additional costs can amount to 5 percent of the central government budget and can be covered only by a significant increase in central and local revenues.

• The “pessimistic scenario” (unsustainable costs) postulates that the government will keep more than a quarter²² of its deconcentrated officials while continuing to increase transfers in order to achieve the target (30 percent of revenues). In this case, the annual extra cost of decentralization will amount to more than 12 percent of the central government budget.

Table 12:

Additional Costs of Decentralization²³

Source: Central government fiscal reporting table (TOFE), account of the regional assemblies, and mission calculations.

Table 12:

Additional Costs of Decentralization²³

In XOF billion unless stated otherwise				2009-14	2015	2016	2017	2018	Average 2016-18
GDP				5,098.2	6,229.9	6,645.8	7,089.4	7,562.7
Central gov’t budget (revenues, including budget support)				1,060.4	1,395.2	1,525.0	1,667.0	1,822.1
	Tax revenues			750.3	981.5	1,058.7	1,141.9	1,231.7
	Expenditure (personnel; goods and services)			493.2	621.04	670.7	724.4	782.3
Local government budgets				105.8	141.5	220.2	285.5	369.5
	Annual change (%)			0.13	0.14	0.56	0.30	0.29	0.38
	Δ Change in transfers				9.4	78.7	65.3	84.0	76.0
		Scenario 1 (gradual entry into operation of 4 new regions a year)				23.8	47.5	65.3	45.5
		Scenario 2 (scenario 1 + an increase of 5 percent in payroll expenditure)				57.3	83.7	104.4	81.8
		Scenario 3 (scenario 1 + an increase of 10 percent in payroll expenditure)				138.3	215.0	274.2	209.2
Cost of Decentralization
		Scenario 1 (gradual entry into operation of 4 new regions a year)
			In % of the central gov’t budget			1.6%	2.8%	3.6%	2.7%
			In % of tax revenues			2.2%	4.2%	5.3%	3.9%
		Scenario 2 (scenario 1 + an increase of 5 percent in payroll expenditure)
			In % of the central gov’t budget			3.8%	5.0%	5.7%	4.8%
			In % of tax revenues			5.4%	7.3%	8.5%	7.1%
		Scenario 3 (scenario 1 + an increase of 10 percent in payroll expenditure)
			In % of the central gov’t budget			9.1%	12.9%	15.0%	12.3%
			In % of tax revenues			13.1%	18.8%	22.3%	18.1%

Source: Central government fiscal reporting table (TOFE), account of the regional assemblies, and mission calculations.

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Table 12:

Additional Costs of Decentralization²³

In XOF billion unless stated otherwise				2009-14	2015	2016	2017	2018	Average 2016-18
GDP				5,098.2	6,229.9	6,645.8	7,089.4	7,562.7
Central gov’t budget (revenues, including budget support)				1,060.4	1,395.2	1,525.0	1,667.0	1,822.1
	Tax revenues			750.3	981.5	1,058.7	1,141.9	1,231.7
	Expenditure (personnel; goods and services)			493.2	621.04	670.7	724.4	782.3
Local government budgets				105.8	141.5	220.2	285.5	369.5
	Annual change (%)			0.13	0.14	0.56	0.30	0.29	0.38
	Δ Change in transfers				9.4	78.7	65.3	84.0	76.0
		Scenario 1 (gradual entry into operation of 4 new regions a year)				23.8	47.5	65.3	45.5
		Scenario 2 (scenario 1 + an increase of 5 percent in payroll expenditure)				57.3	83.7	104.4	81.8
		Scenario 3 (scenario 1 + an increase of 10 percent in payroll expenditure)				138.3	215.0	274.2	209.2
Cost of Decentralization
		Scenario 1 (gradual entry into operation of 4 new regions a year)
			In % of the central gov’t budget			1.6%	2.8%	3.6%	2.7%
			In % of tax revenues			2.2%	4.2%	5.3%	3.9%
		Scenario 2 (scenario 1 + an increase of 5 percent in payroll expenditure)
			In % of the central gov’t budget			3.8%	5.0%	5.7%	4.8%
			In % of tax revenues			5.4%	7.3%	8.5%	7.1%
		Scenario 3 (scenario 1 + an increase of 10 percent in payroll expenditure)
			In % of the central gov’t budget			9.1%	12.9%	15.0%	12.3%
			In % of tax revenues			13.1%	18.8%	22.3%	18.1%

Source: Central government fiscal reporting table (TOFE), account of the regional assemblies, and mission calculations.

B. Optimizing Own Resources

46. Optimization of own resources is a significant challenge for the local governments. Own resources (made up of local taxation and other revenues from government lands or fees for services provided) have a number of advantages:

• They are predictable and form part of the freedom of administration of the local governments.

• They can adapt to specific characteristics and encompass community disparities better than central taxation.

• They are linked to the activity, and the local government thus benefits from the improvements in local development, through the expansion of the base for these resources.

• They are levers of public policy that can increase the attractiveness of the local community and finance local services.

• The proximity of the local government to the taxpayers can reduce collection costs, unless cases of collusion appear.

• Own resources can absorb at least a part of the additional costs generated by decentralization.

47. There is significant room for improvement in local taxation. In most cases, the local governments’ tax potential is under-exploited, leaving room for improvement without major innovations (for more details on the weaknesses of local taxation, see the first section of this report). The Malian government (see Box 7) is considering various areas for improvement.

48. There is similar room for improvement of local nontax revenues. Local governments have numerous sources of nontax revenues: sales of harvests and forestry products, fees and revenues from the use of government lands, provision of services, financial products, works on behalf of third parties, and other current administrative revenues. The optimization of these revenues also involves reviewing current taxes by considering: their collection costs, their acceptability to users, any exemptions that may exist, and the effectiveness of audits.

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

49. The system of allocations and grants must be reviewed against best practices. Even optimized, own resources cannot cover all local government needs (Box 8), which is why it is necessary to continue the transfer of allocations and grants. These transfers should have a number of essential qualities:

• They should cover the needs of local governments, bearing in mind their specific economic, geographic and social characteristics.

• They should encourage local governments to boost their own resources.

• They should be predictable and anchored to national revenues so as not to destabilize the macroeconomic framework, particularly when the central government is encountering fiscal pressures.

• They should not create significant asymmetries between poor local governments and those benefiting from windfall resources.

• They should be assigned to certain categories of expenditures (i.e., investments) only in cases in which public policies or prudent management so require.

50. Most decentralized countries have introduced systems for the equalization of transfers adapted to specific characteristics and local policy needs. While some countries introduce conditional transfers, targeting specific expenditures (Egypt, Ghana, Mauritania and Rwanda), others introduce a more general formula for the allocation of transfers. The current practice is to group these two types of transfers (Ghana, Kenya, Uganda and Tanzania) with a view to pursuing national priorities, while also giving flexibility to local executives in the pursuit of local development programs. Moreover, many countries adopt a budget allocation calculation base, i.e., the share of the central government budget intended for transfers. As an example, Morocco passes on 30 percent of total VAT proceeds, 15 percent of corporate income tax proceeds, and 1 percent of personal income tax proceeds in the form of transfers. Cameroon has established a surcharge (the “centime additionnel”), which is obtained by increasing the amount raised through central taxes such as the corporate income tax and personal income tax by 10 percent; 70 percent of this surcharge goes to the communes and the remainder supplies an investment fund. In the case of Ghana, transfers cannot be less than 5 percent of tax revenues. This anchoring of the main allocation to a national tax presents a real advantage of predictability and transparency of transfers at the central and local levels. Annex 3 presents the formulas used in countries comparable to Mali.

51. An adequate equalization formula combines transparency, simplicity and equity, but must avoid any disincentive effect. Transfers are also a tool for promoting good governance and protecting macroeconomic stability. The combination of these various factors guarantees better predictability of allocations, which benefits not only the central government but also the local governments as they prepare their budgets. Moreover, a less complex system avoids a lack of transparency of transfers and enables taxpayers to assess the effectiveness of local development policies. A basic characteristic of the resource distribution equations is that they must promote the optimization of local taxation. Although various formulas help to reduce excessive asymmetries between local governments, equalization equations do present a risk of being a disincentive to the optimization of local tax performance.

52. Mali is already using an equalization system for local investment. In 2007 Mali established a National Local Government Support Fund (FNACT), which is financed mainly by the technical and financial partners and in part by central government budget allocations and grants. The National Local Government Investment Agency (ANICT) manages this fund earmarked to investments essential for the improvement of public services. To allocate transfers, ANICT uses an interesting equalization formula (Box 9), which combines two series of criteria: (i) situation criteria (the needs of local governments based on their local context); and (ii) performance criteria (sound tax administration by the local governments).

53. The government could use a similar but improved formula to calculate the transfers for operating local government current expenditure. The ANICT equalization formula has the advantage of simplicity and transparency, but it also has limitations:

• The calculation basis, i.e., the initial allocation,²⁴ is a variable that is somewhat too random. The initial allocation varies depending on the sources of financing and the central government budget equilibrium. This leaves discretion to the authorities responsible for deciding on the annual amount of allocations and makes it impossible for local governments to forecast the amount of allocations. To reduce this bias, the authorities could anchor the allocations to a more permanent base, such as to central government tax revenues or a particular tax category, in order to base the transfers on the national economy.

• The equalization formula takes little account of geographic differences. The current formula uses the local population as the only criterion, which can disadvantage large, sparsely populated regions. It may be preferable to integrate size or population density in this formula, as other countries do (Kenya, Uganda and Rwanda).

• The use of a single tax²⁵ as a tool to measure tax collection capacity may be inadequate, given the extreme disparities in the revenues from this tax from one local government to another, particularly between urban areas and rural areas.

D. Regionalization: A Priority

54. The number of levels of local government is an essential component of the architecture of decentralization. This architecture is generally based on proximity (commune, urban community, neighborhood) for the implementation of basic services not requiring large economies of scale. Other broader levels (departments, regions, counties, cantons) are assigned responsibilities for economic development, investment, infrastructure, land use planning, development of human capital, and even police and security. For example, three types of architecture exist within the WAEMU (Box 10).

55. The government has not yet established the local government architecture or the contours of the new administrative map of Mali. The law of February 2012 reforming the Local Governments Code introduced 11 new regions but its implementation has been postponed. In 2013, the government²⁶ expressed concerns regarding the appropriateness of establishing these new regions (a number of which are deserts) and wondered about the possibility of eliminating the counties. Another envisaged option was grouping or merging small communes to streamline their management and adapt their contours to social characteristics based on traditions and customs. Under this latter approach, the number of communes would decrease from 703 today to about 600.

56. In the end, the choice of the most appropriate architecture should be based on a rational logic.²⁷ Political choices or compromises resulting from the negotiations under way may well influence the choices and the number of levels ultimately selected, but important implications for public finance management must also be taken into consideration:

• Each local government means an additional budgetary cost: for example, the cost of local elections, infrastructure (construction and maintenance), facilities for executives (remuneration, transportation and even housing), management of resources, and operational expenditures for implementing public policies.

• The difficulties of budgetary coordination and monitoring increase as the number of local governments increase. The workload (and costs) handled by the various units - oversight, financial controls (internal and external), technical assistance for local management, fiscal planning, accounting, and tracking of financial assets and liabilities - increases owing to the number of actions taken by the local governments and, to a lesser extent, the volume of financing handled.

• It is easier to take into account the specific characteristics of broad decentralized levels when they are less numerous and of a significant size. The regions and large urban communities are able to seek economies of scale and the best offer for services if they can look to large and competitive markets for their public policies. Conversely, small communities have higher management expenses for their procurement and must deal with imperfect supply structures (collusive oligopolies).

57. The above considerations support the government’s decision to increase regionalization and advocate in favor of gradual and differentiated implementation. Considering the magnitude of the fiscal decentralization (see section 2), which will see the local budgets triple, it is recommended to proceed cautiously with a few key phases:

• Consolidation of the communes: This involves adjusting budgets to provide communes with means to assume their responsibilities (local services, including health and basic education).

• Orderly dismantling of the counties, if that is the government’s decision: This involves organizing the elimination of the counties (some of which capital cities will become heads for new regions) in a rational manner and ensuring the transfer of their assets (infrastructure, human resources, knowledge) to the new regions.

• Phasing the regionalization: Transfers of resources to the regions should be subject to a number of prerequisites (regional administration actually in place, establishment of an appropriate governance framework). Following this logic, the transfers would be adjusted according to: (i) the needs dictated by geography and circumstances (e.g., the reconstruction of the North, support for zones that are vulnerable to poverty or health risks, improving connectivity for zones with limited communications networks); (ii) the capacities of the executives and the structure of local markets: this involves a relevant sequencing to allow local executives to step-up their management, the central government to introduce appropriate controls, and the local markets to adjust supply to the needs of the executives.

E. Conclusions and Recommendations

Reform the system for the calculation of allocations and grants. This involves applying a simple, equitable and predictable allocation equalization formula that is based on the country’s economy in order to increase transparency (main transfer) and equity (secondary transfer).	The formula or formulas applicable for the calculation of allocations must: • Adopt an anchor for the “main” transfer (e.g., total revenues, tax revenues, VAT, etc.),\ in order to reduce the arbitrariness and unpredictability of transfers; • Revise the existing system for the “secondary” transfer to enhance transparency and equity (consideration of the size of the territory covered by local communities, better assessment of tax performance); • Avoid any disincentive affect in the optimization of local taxation (introduce a system of bonuses and penalties to encourage good performance and penalize poor performance).	2015–18
Optimize 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.	Review and streamline the system of local taxes and fees to: • Promote taxation aligned with economic activity, adapted to the specific characteristics of the local communities, and suited to the changing local economic environment; • Keep only taxes and levies easy to collect, free of distortions, and with positive socioeconomic effects; • Avoid local taxation that is too complex (multitude of taxes), not profitable, and costly; • Exploit the potential of tax and nontax resources to the maximum (tax on mobile telephony, telecommunications antennas); • Capitalize on the successes of the reforms of central taxation and ensure good coordination between central and local taxation.	2016–18
Sequence regionalization This involves avoiding a proliferation of levels of local government and focusing the reform on the region.	Gradually adapt the decentralization model (on a case-by-case basis) when the new executives have the required capacities and resources; • Consider the region as the optimal level in this new phase of decentralization; • Do not provide the regions with new resources until certain prerequisites have been met: - Existence of the local government; - Competence of the executives; - Sufficient number and capacity of administrative and financial staff; - Establishment of a fiscal framework for local development and formal adoption of the budget. • Adapt the choice of development objectives: economic at the “region” level, and social at the “commune” level.	2015 2016–18

View Table

Reform the system for the calculation of allocations and grants. This involves applying a simple, equitable and predictable allocation equalization formula that is based on the country’s economy in order to increase transparency (main transfer) and equity (secondary transfer).	The formula or formulas applicable for the calculation of allocations must: • Adopt an anchor for the “main” transfer (e.g., total revenues, tax revenues, VAT, etc.),\ in order to reduce the arbitrariness and unpredictability of transfers; • Revise the existing system for the “secondary” transfer to enhance transparency and equity (consideration of the size of the territory covered by local communities, better assessment of tax performance); • Avoid any disincentive affect in the optimization of local taxation (introduce a system of bonuses and penalties to encourage good performance and penalize poor performance).	2015–18
Optimize 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.	Review and streamline the system of local taxes and fees to: • Promote taxation aligned with economic activity, adapted to the specific characteristics of the local communities, and suited to the changing local economic environment; • Keep only taxes and levies easy to collect, free of distortions, and with positive socioeconomic effects; • Avoid local taxation that is too complex (multitude of taxes), not profitable, and costly; • Exploit the potential of tax and nontax resources to the maximum (tax on mobile telephony, telecommunications antennas); • Capitalize on the successes of the reforms of central taxation and ensure good coordination between central and local taxation.	2016–18
Sequence regionalization This involves avoiding a proliferation of levels of local government and focusing the reform on the region.	Gradually adapt the decentralization model (on a case-by-case basis) when the new executives have the required capacities and resources; • Consider the region as the optimal level in this new phase of decentralization; • Do not provide the regions with new resources until certain prerequisites have been met: - Existence of the local government; - Competence of the executives; - Sufficient number and capacity of administrative and financial staff; - Establishment of a fiscal framework for local development and formal adoption of the budget. • Adapt the choice of development objectives: economic at the “region” level, and social at the “commune” level.	2015 2016–18

A. Review of Local Governance in Mali and its Risks

61. Despite the progress made, the functioning of the local executives remains seriously flawed. The General Directorate of Local Governments tracks indicators on the implementation of decentralization and the respect of certain rules of good governance by local governments. These indicators cover, in particular, approval of initial budgets and budget execution accounts and the holding of regular sessions of the deliberating assemblies and the regional and local development action steering, coordination and monitoring committees. As shown in Table 13, the results observed across all regions of Mali indicate that these best practices for local governance are not yet fully entrenched in local government practices. Setting aside the difficulties encountered since 2012 in the Northern regions, performance in the other regions of the country varies considerably and is often weak. The case of the District of Bamako, which has recorded poor results for 4 indicators, is particularly worrisome in this regard.

Table 13:

Local Government Governance Indicators

Source: General Directorate of Local Governments.

Table 13:

Local Government Governance Indicators

Approval of initial budgets						Approval of budget execution accounts
Region	2010	2011	2012	2013	2014	Region	2010	2011	2012	2013
Kayes	54.01%	91.97%	89.05%	97.08%	96.35%	Kayes	95.62%	61.31%	95.62%	91.97%
Koulikoro	1.72%	97.41%	100.00%	90.52%	37.93%	Koulikoro	92.24%	64.66%	96.55%	31.03%
Sikasso	93.55%	98.71%	100.00%	60.00%	92.90%	Sikasso	90.97%	99.35%	48.39%	92.90%
Ségou	38.89%	96.83%	99.21%	34.92%	97.62%	Ségou	98.41%	96.83%	15.87%	96.83%
Mopti	69.23%	94.87%	73.50%	98.29%	85.47%	Mopti	97.44%	58.12%	76.07%	97.44%
Tombouctou	93.10%	100.00%	1.72%	34.48%	56.90%	Tombouctou	100.00%	0.00%	0.00%	68.97%
Gao	82.76%	55.17%	0.00%	31.03%	3.45%	Gao	51.72%	0.00%	3.45%	3.45%
Kidal	100.00%	81.25%	0.00%	6.25%	25.00%	Kidal	100.00%	0.00%	6.25%	25.00%
Bamako District	28.57%	100.00%	71.43%	14.29%	14.29%	Bamako District	71.43%	57.14%	0.00%	14.29%
Holding of regular sessions of the CROCSAD and the CLOCSAD						Holding of regular sessions of the deliberating assemblies
Regions	2010	2011	2012	2013		Region	2010	2011	2012	2013
Kayes	39.13%	52.17%	56.52%	69.57%		Kayes	47.87%	81.59%	80.81 %	85.47%
Koulikoro	26.09%	56.52%	34.78%	78.26%		Koulikoro	76.39%	71.06%	68.75%	83.80%
Sikasso	69.57%	65.22%	26.09%	26.09%		Sikasso	86.22%	91.33%	50.68%	91.84%
Ségou	43.48%	69.57%	104.35%	47.83%		Ségou	65.04%	52.12%	54.87%	91.31%
Mopti	84.62%	69.23%	92.31 %	57.69%		Mopti	75.00%	75.00%	10.19%	66.67%
Tombouctou	64.71%	52.94%	0.00%	11.76%		Tombouctou	81.25%	15.38%	0.00%	10.58%
Gao	92.86%	42.86%	0.00%	7.14%		Gao	79.17%	18.75%	0.00%	6.25%
Kidal	85.71%	71.43%	0.00%	0.00%		Kidal	79.55%	0.00%	0.00%	9.09%
Bamako District	20.00%	40.00%	0.00%	0.00%		Bamako	N/A	N/A	N/A	N/A

Source: General Directorate of Local Governments.

View Table

Table 13:

Local Government Governance Indicators

Approval of initial budgets						Approval of budget execution accounts
Region	2010	2011	2012	2013	2014	Region	2010	2011	2012	2013
Kayes	54.01%	91.97%	89.05%	97.08%	96.35%	Kayes	95.62%	61.31%	95.62%	91.97%
Koulikoro	1.72%	97.41%	100.00%	90.52%	37.93%	Koulikoro	92.24%	64.66%	96.55%	31.03%
Sikasso	93.55%	98.71%	100.00%	60.00%	92.90%	Sikasso	90.97%	99.35%	48.39%	92.90%
Ségou	38.89%	96.83%	99.21%	34.92%	97.62%	Ségou	98.41%	96.83%	15.87%	96.83%
Mopti	69.23%	94.87%	73.50%	98.29%	85.47%	Mopti	97.44%	58.12%	76.07%	97.44%
Tombouctou	93.10%	100.00%	1.72%	34.48%	56.90%	Tombouctou	100.00%	0.00%	0.00%	68.97%
Gao	82.76%	55.17%	0.00%	31.03%	3.45%	Gao	51.72%	0.00%	3.45%	3.45%
Kidal	100.00%	81.25%	0.00%	6.25%	25.00%	Kidal	100.00%	0.00%	6.25%	25.00%
Bamako District	28.57%	100.00%	71.43%	14.29%	14.29%	Bamako District	71.43%	57.14%	0.00%	14.29%
Holding of regular sessions of the CROCSAD and the CLOCSAD						Holding of regular sessions of the deliberating assemblies
Regions	2010	2011	2012	2013		Region	2010	2011	2012	2013
Kayes	39.13%	52.17%	56.52%	69.57%		Kayes	47.87%	81.59%	80.81 %	85.47%
Koulikoro	26.09%	56.52%	34.78%	78.26%		Koulikoro	76.39%	71.06%	68.75%	83.80%
Sikasso	69.57%	65.22%	26.09%	26.09%		Sikasso	86.22%	91.33%	50.68%	91.84%
Ségou	43.48%	69.57%	104.35%	47.83%		Ségou	65.04%	52.12%	54.87%	91.31%
Mopti	84.62%	69.23%	92.31 %	57.69%		Mopti	75.00%	75.00%	10.19%	66.67%
Tombouctou	64.71%	52.94%	0.00%	11.76%		Tombouctou	81.25%	15.38%	0.00%	10.58%
Gao	92.86%	42.86%	0.00%	7.14%		Gao	79.17%	18.75%	0.00%	6.25%
Kidal	85.71%	71.43%	0.00%	0.00%		Kidal	79.55%	0.00%	0.00%	9.09%
Bamako District	20.00%	40.00%	0.00%	0.00%		Bamako	N/A	N/A	N/A	N/A

Source: General Directorate of Local Governments.

62. The audits conducted reveal recurrent difficulties, over time and in all local governments. These difficulties relate in particular to a failure to respect contracting and procurement procedures (failure to use competitive bidding, ineffective or noncompliant services and deliveries, terms of payment, etc.). However, they also concern the expenditure planning and forecasting phase and the limited capacity of local executives to prepare accurate and realistic budgets, taking into account all expenditures (chronic under-budgeting of infrastructure maintenance expenditures, for example) while at the same time not overestimating the resources actually available (impact of the difficulties in collecting local taxes). These weaknesses lead to budget execution and cash flow difficulties, which are reflected, for example, in delays in the payment of the wages of local government officials.

63. There are many weaknesses in the areas of investment as well, involving everything from the failure to respect procedures to poor performance of public spending. For example, audits conducted in 2012 on a sample of 116 works projects carried out in 2010/2011 by 19 counties and 43 local governments in the regions of Ségou, Koulikoro, Kayes and Sikasso²⁸ showed that:

• The respect of administrative and control procedures for procurement was insufficient for 66 percent of projects (based on the documentation presented).

• The respect of public expenditure payment arrangements was insufficient for 47 percent of projects (share paid by the local governments, advances, contract holdback, etc.).

• Administrative and financial control was insufficient for 77 percent of projects.

• Verification and monitoring of completion were insufficient for 69 percent of projects.

• 70 percent of works were defective and 17 percent of completed works were not functional or remain unused.

64. There is an execution and control procedure in place for local expenditures. The internal and external control mechanism for local public spending in Mali is robust and involves numerous participants at various stages (Table 15). It involves both the central and deconcentrated units of the central government responsible for oversight of the local governments and for the support/advice function, as well as the external auditing bodies, headed by the Office of the Auditor General and the Supreme Audit.