Ahmad, E., G. Brosio, A. Díaz-Zurro, I. Fainboim, R. Villela, and C. Parente (2004), Bolivia: Improving Budget and Decentralization Processes, FAD, December.
Manoel A. M., M. Albino, and J.P. Jiménez (2001), Bolivia: Evolución de la Descentralización Fiscal y el Control de la Deuda de los Gobiernos Municipales, FAD, June.
Pérez, L., G. Brosio, I. Coelho, J-L. Ruiz, and J-R. Ruiz (1998), Bolivia: Las Relaciones Fiscales Intergubernamentales—Propuestas para Mejorar el Uso de Recursos y el Manejo Macroeconómico, FAD, December.
People’s Republic of China
Ahmad E., M. Albino-War, A. Fedelino, D. Jacobs, and J. Gardner (2004), PR China: Toward Managing Subnational Fiscal Risks, FAD, March.
Ahmad E., H. Brixi, M. Fortuna, B. Lockwood, and R. Singh (2003), PR China: Reforming Fiscal Relations between Different Levels of Administration, FAD, March.
Ahmad E., L. Keping, T. Richardson, and R. Singh (2002), “Recentralization in China?” IMF Working Paper WP/02/168, and in Ahmad and Tanzi, 2002.
Ahmad, E., K-Y. Lee, and A. Kennedy (1993), China: The Reform of Intergovernmental Fiscal Relations, Macroeconomic Management and Budget Laws, FAD, October.
Fedelino A. and Ter-Minassian T. (2006) “Intergovernmental Fiscal Relations in China” Stanford Center for International Development, Working Paper No. 305 (December)
Fedelino A., and R. Singh (2004), “Fiscal Federalism,” in China’s Growth and Integration into the World Economy: Prospects and Challenges, ed. by Eswar Prasad, IMF Occasional Paper 232 (Washington: International Monetary Fund).
Ahmad, E., J-L. Ruiz, and I. Garrido (1995), Colombia: Endeudamiento territorial, gestion y consideraciones macroeconomicas (Territorial debt-management and macroeconomic considerations), FAD, October.
Lozano I., J. Ramos and H. Rincon (2007) “Implicationes Fiscales de la Reforma a las Transferencias Territoriales en Colombia” Borradores de Economia No. 437, Banco de la Republica de Colombia.
Democratic Republic of Congo
Seade, J., G. Brosio, A. Mati, A Catalan, A. Raouya, J. Hartley, F. Vaillancourt, and K. Kubota (2005), DR Congo: Assistance Technique en matiere de Decentralisation Fiscale, FAD, April.
Ahmad E., and E. Mottu (2002), “Oil Revenue Assignments: Country Experiences and Issues,” IMF Working Paper (Washington: International Monetary Fund).
Ahmad, E, G. Brosio, P. Desai, R. Krelove, J. Ma, and Z. Qureshi (1999), Indonesia: Redesigning Intergovernmental Fiscal Relations, FAD—joint mission with World Bank, February.
Ahmad, E., B. Hofman, J. Ma, R. Rye, R. Searle, and J. Stevenson (1999), Indonesia: Decentralization—Managing the Risks, FAD—joint mission with World Bank, June.
Potter B. H., E. Mottu, and M. Hawtin (1998), Fiscal Management, Decentralization, and Organization of the Ministry, FAD, December.
Fedelino A., M. Bordignon, P. Daniel, J. Gottschalk, and D. Last (2009) Liberia: Toward a Framework for Fiscal Decentralization, FAD, April.
Clements, B. K. Christopherson, H. van Eden, and P.B. Spahn (2004), FYR Macedonia: Paving the Way for Fiscal Decentralization, FAD, February.
Schwartz G., S. Danninger, W. Dillinger, C. Purfield, P.B. Spahn, and E. Tiongson (2002), FYR Macedonia: Local Government Financing and the Reform of Intergovernmental Fiscal Relations, FAD, May.
Ahmad, E., J. A. González Anaya, G. Brosio, M. García-Escribano, B. Lockwood, and E. Revilla (2007) “Why Focus on Spending Needs Factors? The Political Economy of Fiscal Transfer Reforms in Mexico” IMF Working Paper No. 07/252 (October)
Ahmad E., L. Doe, T. Prakash, S. Khemani, V. Kwakwa, R. Singh, G. Brosio, and A. Daba (2001), Nigeria: Options for Reforming Intergovernmental Fiscal Relations, FAD—joint mission with World Bank, May.
This paper has been coordinated by A. Fedelino, under the oversight of T. Ter-Minassian. A number of current and former FAD staff contributed to the case studies: A. Simone and P. Medas (Bolivia), A. Fedelino (People’s Republic of China, Kosovo, Liberia, and Macedonia), I. Adenauer (Colombia), A. Westphal (Democratic Republic of Congo), L. Lusinyan, A. Mati, E. Le Borgne, I. Lienert (Indonesia), P. Lopez-Murphy (Macedonia), M. Garcia-Escribano and G. Palomba (Mexico), and B. Goldsworthy, M. Villafuerte and O. Williams (Nigeria).
For example, in Argentina (in 2002 and 2004). This country is not covered in the case studies in this paper.
See the Reference section for a list of the main supporting documents.
According to the 1997 budget law, debt service was not to exceed 25 percent of revenues and debt stock was to be lower than 250 percent of revenues.
For example, focusing spending cuts at the central agencies level undermined the functioning of critical agencies and public services. In addition, the authorities adopted a financial transactions tax (excluded from revenue-sharing) after attempts to pass other measures met stiff resistance, also by regions and municipalities.
A new Direct Tax on Hydrocarbons (IDH) was introduced in 2005; while this has resulted in an increase in the overall government take from the hydrocarbon sector, close to 60 percent of IDH collections is transferred to subnational governments. In addition, the share of royalties going to subnational governments was increased from 45 percent to 55 percent. Regional governments have been the largest beneficiaries of these increases (universities have also benefited from additional earmarked revenues from the IDH).
In 2005, shared revenue represented about 90 percent of total net resources transferred from the central government to subnational governments, while grants represented the remaining 10 percent. The Regional Compensation Fund (FCD) is funded by 10 percent of hydrocarbons products excise tax (IEHD) and its objective is to reduce inequities in revenues across regional governments. However, large disparities remain after the transfer of these resources contributing to disparities in spending and poverty rates across regions.
A provincial pilot project, launched in 2001, replaced numerous fees with a surcharge on the local agricultural tax. This “tax-for-fee” reform was gradually extended to all the provinces.
Between 1996 and 2006, transfers to subnational governments increase by more than 460 percent.
De jure, asymmetric arrangements are based on legal provisions that allow for a more rapid take-up of responsibilities, typically in the main urban centers and advanced regions, relative to the rest of the subnational governments. In the case of Bogotá, the city government managed to take advantage of the opportunities afforded by the legislation to all subnational governments, resulting effectively in asymmetric decentralization.
A first mission in early 1995 focused on reforming subnational taxation and transfers, shortly followed by a second mission in late 1995 to examine subnational debt and macroeconomic management.
Beyond 2008, the rate of transfer growth was to be linked again to the central government’s revenue. This clause was not implemented due to a constitutional amendment in late 2007 that permanently changed the transfer system (see below).
Municipalities already had some flexibility to increase rates in most taxes before the organic statute was approved. What Bogota did was to exploit this opportunity.
“Property assessments” are prepared with relatively low frequency by the national cadastre office. A few municipalities (Bogotá, Medellin) have their own cadastre offices; this has allowed Bogotá to increase substantially its property tax base.
This was also recommended by the October 1995 mission.
Art. 198 stipulates that the elected governors and vice-governors have to be installed by the DRC President.
Tax collection functions are split between OFIDA (customs revenue and excise taxes), DGI (tax revenue), and DGRAD (nontax revenues).
The high concentration of large companies in the capital Kinshasa, which also hosts the large-taxpayer unit, results in a high share in total income tax collection. Moreover, Kinshasa and Bas-Congo (with the main port Matadi) are the main entry points of the country. Katanga has the highest concentration of mining companies.
The ETDs consist of “villes, communes urbaines, communes rurales, secteurs, and chefferies.”
The decentralization legislation consists of the following three laws: (i) Loi sur la libre administration des provinces; (ii) Loi sur les Entités Territoriales Décentralisées; and (iii) Loi sur la Conférence des Gouverneurs de province.
A transitory clause on the exclusion of oil revenues could be justified on the basis that it will take a few years to establish the necessary administrative capacity in the provinces to efficiently manage the new resources.
The 2008 budget law reflected the consensus reached during the National Forum on Decentralization in respect to the determination of the revenue base and the revenue distribution formula. However, in the actual budget execution, particularly in the first half of the year, retrocession payments fell well short of the amounts that would have resulted from a strict application of the distribution formula.
Besides civil servants working for transferred public services (primary and secondary education, health sector, and agricultural services), this concerns also a part of employees of other deconcentrated services.
Following independence in 1945, earlier attempts dating to the early days of the Republic were offset by the center’s reluctance to grant significant autonomy to the regions. Legislation was first passed in 1957 to revitalize regional autonomy but was stopped after regional unrest in Sumatra and West Java. A new law in 1974 attempting to revamp the process was never implemented because of concerns about the administrative capacity of regional governments.
This could have also been the result of the “hold-harmless” policy (stipulating that the regions will not receive lower transfers than in the previous year), as the number of regions grew. This provision was lifted in 2008 (when transfers amounted to 5.8 percent of GDP).
Cities and regencies are also called “level II regions” or districts. Their number has been increasing over the years, and expected to continue to do so in the future.
“Tobacco yield excise” are also shared with for tobacco-producing regions (2 percent); however, this is designed as an earmarked grant.
These rates vary from 15.5 percent of total collection for oil to 30.5 percent for gas revenues and 80 percent for general mining, forestry and fishing. Special (higher) rates originally applied to resource-rich special autonomy regions; however, the peace deal with Aceh in 2005 gave it virtual control over all natural resource revenues.
The numbers of sectors funded has varied over the years, depending on the government priorities (for example, the 2009 budget includes 13 sectors).
The central government also allocates deconcentration and co-administration funds to regions, funded from the state budget. Deconcentration funds are handed out to governors as representatives of the central government’s line ministries in the regions; co-administration funds are disbursed to regional governments or village administrations. The combined amount of these funds is far greater than DAK transfers. In principle, Article 108 of Law No. 33/2004 states that deconcentration and co-administration funds (which has similar objectives as DAK) are to be transferred in stages to DAK in the future.
The provision was actually removed by government but reintroduced by Parliament.
“Spending for Development” Indonesia Public Expenditure Review, World Bank, 2007 (p.127 and Figure 7.5)
According to the 2009 budget, outstanding loans of regional government at end-2007 (on-lent foreign loans and domestic loans from the central government) amounted to 0.02 percent of GDP.
The decentralization laws were revised in 2004. Major changes included: an increase in the share of oil/gas receipts to the regions by 0.5 percentage points by 2008, with the funds earmarked for education spending; “excess revenue” being kept with the center when oil prices rise by more than 30 percent above the budget price; basic grant allocation no longer being a minimum amount, and reduced by the extent to which fiscal capacities exceed fiscal needs (based on formulas); and reporting by regions of their borrowing and debt positions to the center twice a year under the threat of delayed transfer payments.
Submission of local government budgets to the ministry of finance has significantly improved starting with the 2008 budget, particularly as a result of introduction of sanctions (delaying DAU and DAK transfers); by end-February 2007, 46 percent of local governments had submitted their 2007 budgets to the MOF. For the 2008 budget, that proportion had reached 82 percent by end-February. In 2009, three LGs were penalized, down from five in 2008 (out of 510 districts).
A mission from the IMF Statistic Department in April 2009 found that work had progressed on the pilot test of the Local Government Finance and Governance Reform project—implementing systems to improve the timeliness and quality of subnational fiscal data—but that there was likely to be a long lag before complete data become available for all local governments. Accordingly, the mission recommended that a simple, but robust, sample expansion approach be adopted to estimate data for the local government subsector.
Davis, J. et al. (2007). The issue of weak and untimely reporting and its possible implications also featured prominently in the 2006 ROSC Report on Fiscal Transparency (IMF Country Report No. 06/330).
Based on the new transfer formula, the share of transfers to GDP is expected to decline in 2010 and over time to about 5 percent of GDP.
Kosovo has applied for Fund membership, which is expected later in 2009.
Since the end of the conflict with Serbia in 1999, Kosovo had been administered by the United Nations. Following the withdrawal of the Ahtisaari Proposal from the UN Security Council due to a veto threat by Russia in the summer 2007, a Troika Group (European Union, Russia, and United States) subsequently attempted to facilitate bilateral negotiations between Serbia and Kosovo. As these negotiations failed to produce a mutually agreeable outcome, the Kosovo government unilaterally declared independence in February 2008.
“Comprehensive Proposal for Final Status Resolution,” presented to the United Nations’ Security Council by Special Envoy Marti Ahtisaari in March 2007.
According to “Kosovo in Figures” (the 2005 Survey of the Statistical Office of Kosovo), Kosovo’s total population is estimated between 1.9 and 2.2 million in the following ethnic proportions: 90 percent Albanians; 5 percent Serbs; 3 percent Bosniak and Gorans; 1 percent Roma; and 1 percent Turks. It is also believed that many pre-1999 Kosovar Serbs and individuals from other ethnic groups originally from Kosovo now live in Central Serbia (about 250.000–350.000); and other regions.
These municipalities would be allowed to receive transfers from Serbia that should not be offset or taxed away by the Kosovo government; the latter, in turn, will need to provide financing for minimum service standards in these municipalities for tertiary education (a university) and secondary health (a hospital)—while similar services in the rest of Kosovo will continue to be managed centrally.
An initial draft had been prepared by an FAD short-term expert.
For example, if the number of enrolled students (one of the variables used to compute the education grant) increased, this would lead to a corresponding increase in such grant.
At the time this case study was prepared, it was not yet known how the changes in the transfer will affect municipalities, and whether hold-harmless mechanisms had been put in place.
The FAD public financial management advisor for South East Europe provided advice along these lines in March 2009.
Since independence in 1847, the government has been largely composed of an elite of descendants of the original African-American settlers. Located in the capital Monrovia, the central government was in charge of all political and economic matters; while a number of local agents, distributed across the territory, had the task of interacting and mediating with the local population, in turn largely self-organized according to pre-existing communal rules.
The Upper House is organized according to county lines, with two senators per county (largely following the model of the United States’ Senate).
Deconcentration refers to internal managerial and financial assignment of responsibility in the execution of a ministry’s agents at the local level. Accountability, under deconcentration, remains in the hands of the parent ministry.
In 1833, Liberia was composed of three counties and the hinterland; over time, several new counties were created, especially in the last 20 years.
“The Electoral Reform Law Relating to Municipalities, Counties, Districts, Townships and Chiefdoms and other political subdivisions of Liberia” prepared by the Ministry of Internal Affairs.
Aware of these shortcomings, the President has alluded to changes in the CDF procedures in her Annual Message in January, although details are not known.
The LRC consolidated all Liberian taxes. The government has proposed a comprehensive program of tax reform, and prepared draft legislation expected to go before the Legislature in first half of 2009. For a summary of the main taxes in Liberia, see Appendix I.
The government has proposed a comprehensive program of tax reform, and prepared draft legislation that was expected to go before the Legislature in first half of 2009.
The percentage of sales contribution to a community development fund could be transferred to the central government; in return, communities could receive a fixed payment from government (as long as production continues) approximating the estimated value of the contribution, less a discount for the assumption of price and volume risk by government.
The notion of local treasuries is not new, as these can be found in most countries which have not yet established devolved government. until recently, Kenya provided a long standing example of such treasuries. Regional treasuries are also a common feature of many Francophone countries in West Africa, where they provide common financial services (budgetary control, centralized payment, and accounting) to all regional offices of line ministries, as well as local revenue collection, and report directly to the Ministry of Finance.
Municipal boundaries were redrawn, to reflect local preferences of association. Municipal elections were held in March 2005.
At the time of the first mission, the 123 municipalities displayed large variability in population size (from 500 to 120,000 inhabitants); 51 of them had less than 5,000 inhabitants. It was felt that many were not viable economic entities.
The second phase of the decentralization process started in October 2007; 68 municipalities had qualified for the second phase by December 2008.
Municipal borrowing is allowed only after municipalities report continuously to the MOF on their financial position and are free of arrears (both conditions applying for a period of 24 months).
See David Coady and S. Parker (2002), “A cost-effectiveness analysis of demand and supply-side education interventions: the case of PROGRESA in Mexico,” Discussions Paper 127, IFPRI.
World Bank, Decentralized Services for the Poor, 2006, Washington D.C. and OECD, Getting the Most out of Public Sector Decentralization in Mexico, 2005, Paris, are two recent examples of extensive studies of the subnational spending assignments and decentralization in Mexico.
In 2006, subnational debt grew in real terms (5 percent growth in real terms and 0.7 percent above the national GDP growth at constant prices) while the public sector debt declined, In 2007, both federal and local government debt declined as a percentage of GDP.
One-month cetes rate rose from 14 percent in November 1994 to 75 percent in April 1995. A few states (Campeche, Coahuila, Chiapas and Nuevo León) experienced debt increases exceeding 150 percent during 1993–95. Out of the 32 states, five (Federal District, State of Mexico, Nuevo León, Jalisco and Sonora) were responsible for nearly 75 percent of the stock of debt.
Average maturity of subnational debt stood at 6.6 years by end-1994.
On average the property tax rate range around 2 percent of value of property, being thus close to prevailing tax rates around the world.
The formula for participaciones is based on three components: 45.7 percent of the pool is distributed according to population; 45.7 percent is allocated on a historical basis—the previous year’s allocation-corrected by a tax effort indicator; and the remaining 9.66 percent is allocated according to the inverse of the per capita allocations of the previous components.
The mission included participation of World Bank staff.
The Nigerian federation includes 36 state authorities and the Federal Capital Territory of Abuja.
The rule works as follows: following parliamentary discussion, a budget reference price is set for an assumed production target. Revenues greater than budgeted are saved in an account at the central bank. In the event of revenue shortfalls, disbursements are made from this account. In addition, the excess crude account has been used to repay Paris Club debt, finance large scale infrastructure projects jointly agreed by all levels of government, and to finance the explicit fuel subsidy.
About US$12 billion were used in 2005–06 to cancel the debt with the Paris Club. The budget oil price was US$35 per barrel in 2006 compared with an actual price of US$60 per barrel.
These issues were discussed by an FAD tax policy mission in December 2007.