1 URBAN FINANCIAL MANAGEMENT: REVENUE RAISING, BUDGETING AND PARTICIPATION WITH SPECIFIC REFERENCE...
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Transcript of 1 URBAN FINANCIAL MANAGEMENT: REVENUE RAISING, BUDGETING AND PARTICIPATION WITH SPECIFIC REFERENCE...
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URBAN FINANCIAL MANAGEMENT: REVENUE RAISING, BUDGETING AND PARTICIPATION WITH SPECIFIC REFERENCE TANZANIA’S
EXPERIENCE______________________________________
Introduction
Urban councils accorded status of government
Have powers to levy and collect taxes, fees and charges
LGRP addresses problem of under funding Objective of LGRP – to enhance financial
resources and increase the efficiency of their use
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Own Source Revenues
Taxes e.g. property tax, service levy, rent
Charges Fees for undertaking activities/access to services Need to step up revenue collection effort Need to harmonize and rationalize taxes, fees and
charges
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Borrowing Borrowing benefits present and future generations
Borrowing currently not seen as a source of finance Bond market at national level just emerging Problem of moral hazard leading to Central
Government paying loans of defaulting councils Local Government Loans Board seriously resource
constrained Bond market is a potential source of finance
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Grants
Grants provided to councils since reintroduction of local government system in 1984
80% of recurrent expenditures financed through grants
Currently, councils have no discretion in allocating grants
Act No.6 of 1999 allows for provision of block grants to councils
Block grants provision to be approached on a phased arrangement
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Shortcomings of Current Grants Allocation
Non-transparent and subject to negotiations
Supply focused rather than demand/client driven
No incentive to improve on service delivery
Favours developed/better off councils
No accountability downward
Excess central control over local resources
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Principles to guide design of grant allocations
Provision of adequate resources
Preservation of budget autonomy Enhancement of equity and fairness Transfers to be predictable Simple and transparent formulae Transfer system not to create negative incentives
for revenue mobilization Transfer system to focus on demand for services Transfer system to avoid equal shares Transfers system to avoid sudden changes in
amounts of grants
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Formula-based system being developed with likely factors as follows
Population Number of school age children Infant mortality rate Poverty count Distance from council headquarters
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Problems facing implementation of Formula based System
Financing of holding harmless
Cost of holding harmless Shs.18.44 billion (14.65 billion for Education and Shs.3.79 billion for Health)
Continued disaggregation of grants into PE & OC
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Eligibility for greater Autonomy
All councils were assessed and went through following three steps:
– Council’s accounts not awarded adverse opinion audit report
– Council has substantial own source revenue
– Council operating good financial management systems
Some 11 councils picked for greater financial autonomy
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Division of Resources between Central and Local Government
Should be guided by expenditure responsibilities
Central Government responsible for development of policies, research, professional development, quality control and setting standards
LGAs lead other agents in implementation Steps being taken to rationalize sources of public
revenues
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Planning and Budgeting Local government system and laws call for bottom-
up planning Participatory planning and budgeting emphasized
as part of the reform of local government People at local level are given the chance of
identifying their problems, prioritizing them and looking for solutions to bring about own development
Financial regulations for block grants management require councils to allocate annual budget to each service outlet
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Capacity Building in Financial Management
Councils can only justify their existence by improving on service delivery
This can happen with better management of finances
So ZRTs are providing inhouse training to address weaknesses in financial management
Introduction of Epicor-based system in 32 councils (including 14 urban councils)
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Urban Councils’ Budgets
LGAs budgets are prepared in the context of Central Government process of planning and budgeting
Plans and budgets of LGAs reflect policies pursued by Central Government
Plans and budgets are made under the law and attendant regulations
They should be developed on a bottom-up participatory approach for full ownership
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Process of Budget Formulation
Budget preparation starts with issuance of annual budget guidelines around December
The guidelines recap the sector policies and areas to be given priority in allocation of resources
Currently priority sectors are education, health, water, roads, agriculture and lands
Ministry responsible for local government clarify issues that are relevant to LGAs
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Process of Budget Formulation (Cont…) Important information contained in guidelines includes
levels of funding to enable councils to plan ahead and realistically
Use of GFS codes links Central and Local Government budget preparation and execution
It engenders uniform application and reporting and makes consolidation of budgets and reports of various levels
Primary education sub-sector claims 70% of the grants while 18% of the grants goes to the health sector
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Local Government Budget
Ownership of the plans is entrenched in the people by use of the Opportunities and Obstacles to Development (O and OD)
Technical input to the planning process begins at ward level
So output of the Ward Development Committee begins to assume the required format
This calls for provision of indicative planning levels of funding to wards
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Local Government Budget (Cont…)
It is not always possible to do this with regard to grant funds
Integrated draft council plans and budgets submitted to Regional Secretariats (RS)
Comments and advice of RS incorporated and draft budget submitted to Finance Committee and thence to Full Council for approval
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Budget Execution and Monitoring
Approved budget is part of the law Monthly reports on revenue collection and
expenditure and bank reconciliation statements submitted to Finance Committee
Quarterly reports submitted to Full Council and copies sent to RS for verification and consolidation
Council management responds to questions and queries raised at various levels
Internal audit checks on soundness of the financial and accounting system and on the execution of the budget
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Budget Execution and Monitoring (Cont..) External audit checks on proper accounting for
funds collected and received and the use to which they are put
LAAC discusses auditors’ findings and observations and gives instructions for improvement of financial performance
LAAC’s instructions are binding on the council hence it is an effective monitoring instrument
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Challenges in Budget Execution
Budget not yet accepted as an instrument for
guiding and controlling activities of the council
Poor quality and delayed reporting
Unpredictable flow of funds from own sources
Non adherence to rules and regulations
Inadequate or lack of qualified staff
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Addressing Challenges
These challenges are being addressed under LGRP’s relevant components of Good Governance, Finance and HRD
Good Governance focuses on enhancing financial accountability and transparency, training of Councillors, codes of conduct and reporting upwards and downwards
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Addressing Challenges (Cont...) Financial management focuses on inhouse training,
and use of Epicor-based system in financial management and introduction of formula-based grant allocation system
HRD focuses of restructuring to identify core and non core functions leading to establishing number and quality of staff required
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Need for Capacity Building
Capacity building needs fall under training and provision of equipment
Capacity building also required at Central Government level in order to adequately support and facilitate LGAs in performing fiscal responsibilities
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Conclusion
The country is on right track to fiscal decentralization
There is adequate superstructure for proper budget execution and fiscal reporting by LGAs
Councils need to justify their legitimacy and existence through good governance including improved delivery of services to the people and enhanced accountability and transparency