African Fiscal Decentralization: A Means to Local Governance

A common problem of local community-led development efforts is that local communities sometimes lack the proper resources to accomplish their goals. Additionally, when central governments control the budgets of local governments, money disbursement can become unfair and untimely. This is where we begin to question the best methods of funding local community efforts, and this is where we turn to fiscal decentralization as a step in the direction of local governance.

Though a complicated task, the idea of decentralization is straightforward: it is the process of moving money from the central government into the hands of those in local government. The World Bank defines several different forms of fiscal decentralization, including local governments self-financing through taxes and other forms of revenue expansion as well as municipal borrowing between the central and local governments. Regardless of a country’s level of decentralization, central or local government may be better equipped to handle certain responsibilities. For example, the military should remain centralized because of its size and cost to the government, but education can generally be managed better in the hands of the local government.

The biggest questions of fiscal decentralization arise from where countries are in the midst of decentralizing. What approaches are countries taking to implement decentralization ? Why is there so little data on how much money actually goes to the local governments?

In 2014, the African Union adopted the “African Charter on the Values of Decentralization, Local Governance, and Local Development”, outlining what decentralized governments in Africa should look like. Concerning governance, the charter specifies several guidelines:

  • Local governments should have the autonomy to create their own laws and regulations, as well as the authority to enforce them
  • Transparency and cooperation must exist between the central and local governments
  • The money, whether disbursed from the central government or raised by the local government, must be used most efficiently for the people
  • Equal participation should be promoted for women, youth, disabled, and any marginalized groups in decision making.

The charter is thorough and relevant to many different decentralization models, but fails to set a standard of what percentage of central government budgets should be transferred to local governments. In other words, it provides a framework but does not deliver methods of application. Not only is there a lack of common methodology between African Union members, but we also lack accurate data that represents the percentage of central government spending going towards decentralization.

Though the charter promotes transparency between levels of government and the annual collection of decentralization data, we tend to only find helpful, but vague, data from international organizations rather than from the member nations themselves.

The International Monetary Fund (IMF) released a working paper on “Measuring Fiscal Decentralization”in 2011 summarizing trends and measurement indicators of decentralization including revenue, fiscal burden, and expenditure. From the paper we learn that decentralization trends positively with “country size, income per capita, ethnic fractionalization, and level of democracy”, making countries like Sweden, Canada, and the United States some of the most decentralized at around 30% of central dollars going directly to local governments. We are able to see trends across time and find that once a country has committed to and implemented decentralization policy, the percentage of the budget that goes to the local governments stay fairly stable over time.

Below are examples of countries both of high and low decentralization status that have remained constant over time. The percentages listed represent the amount of the total budget of each country that was transferred to local government in 1995 and 2008.

1995 2008

Austria

26%

22%

Peru

5%

5%
Sweden

32%

40%

Israel 11% *data  from year 2000

11%

Most data sources we have on this issue tend to only report on the last 20 years. The measurements of decentralization are not standardized and not regularly collected by institutions like the African Union. The main barrier of measuring decentralization comes from using a difficult metric; in general, we use the ratio of spending at the local level compared to the spending at the central level to measure a country’s decentralization status. Tracking and reporting local level spending can be difficult in certain areas, which makes this metric inconvenient.

“A decentralization process with local governments relying on their own resources should be more efficient than a decentralization based on transfers”

Though the data is scarce on how much money local governments receive from their central governments, we can extrapolate the data we do have to similar areas to get a sense of where the world is with decentralization. We know that the developing world is still quite highly centralized and has a lot of work to do. Before being able to really tackle fiscal decentralization, governments must be have a sound revenue system, a measurement plan in place, and transparency between the local and central government decision makers. The more we see local people having an influence over their own budgets, the more we will see communities leading their own development.

 

View the African Union’s 2014 charter on decentralization here

View the IMF’s working paper here.  

Feature image courtesy of africanews.com.

 

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