Two Days Pre-Discussion Review Workshop on SL Fiscal Decentralization Strategy Progress

By Goth Mohamed Goth

The Ministry of Interior (MOI) in collaboration with the Ministry of Finance (MOF), Office of Accountant General, and IMC with the support of UNCDF/JPLG jointly organized a two days pre-discussion review workshop (4th -5th September 2016) focusing on FDS (Fiscal Decentralization Strategy Progress, Local Government Financing framework, services deliveries of the CG Ministries, in anticipation of the proposed  Government Budget Conference which is due to be held on 11^th October, 2016, commenced today at the Ambassador Hotel, Hargeisa .

The Inter-Ministerial Committee (IMC), Accountant General (AG), Auditor General (AG), Line Ministries of Services Deliveries Model, MOE, MOH, MOPW and LGs, The participants will review and discuss the achievement progress made in the first quarter priority implementation of the FDS activities outlined in the FDS Action plan that was planned to be accomplished starting from June to August 2016.

Mr. Adan Hassan Mataan, UNDCF country representative speaking during the opening of the two days’ workshop briefed the participants on the objectives of the two days, “The two days pre-discussion review workshop (4^th -5^th September 2016) will focus on the FDS (Fiscal Decentralization Strategy Progress, Local Government Financing framework, services deliveries of the CG Ministries, made before the Government Budget Conference that will held on 11th October.

Mr. Adan Hassan Mataan , UNDCF went on further by elaborating the proposed management arrangements for delivering change in which he stated as follows:-

The process of fiscal decentralization will affect many different parts of the government and have relevance for other reforms being pursued, including in public financial management and civil service reforms. For reform to be successful it needs active management. For this reason, in this period, the government committed to the following actions to improve the coordination of reform:

• Give responsibility for coordinating implementation to the leadership of MoI – which chairs the Technical Working Group
• Hold a meeting (before Ramadhan of 2016) of the different agencies to agree on who and how to implement/take forward the priority actions
• Invite the UN agencies supporting decentralization to attend/facilitate the meeting jointly – including UNDP; UNICEF; and UNCDF (with ODI)
• Empower officials to deliver the commitments in the first quarter priorities , after which the actions/priorities will be discussed in the TWG meetings and agreements taken to the Inter-Ministerial Committee (IMC)
• Review and update this Quarterly Action Plan regularly (at least on a quarterly basis) in the TWG to ensure it remains relevant to changes in technical, political and other contextual factors that shape the course of decentralization.

. Objective 1: Making sure Existing systems work Better

The overall aims of the Fiscal Decentralisation Strategy review workshop are to strengthen existing systems for:

1. Raising local revenue collections: To clarify the assignment of powers to raise taxes and levy fees and fines between central and local government. While this is happening, the government will also aim to increase collection of local government revenues within the existing legal framework.
2. Managing the municipal subsidy: To develop a more transparent and reliable system for transferring the municipal subsidy to local governments.
3. Financing capital development in all local governments: To introduce a Discretionary Development Grant that will provide financing framework for capital investments for all eligible local governments in the country, building on the experiences of the LDF.
4. local government financial management: To strengthen and harmonise the systems for budget preparation, accounting and reporting by all local governments to ensure resources are used properly and to permit effective oversight by the councils and central government

Objective 2: Strengthening sectoral service delivery

The overall aim of the Fiscal Decentralisation Strategy is it to build on the existing work by the government to establish a consultative process to decide which services will be decentralised to local governments and how they will be financed. This process will need to harmonise the different strands of support to fiscal, political and administrative decentralisation.

Objective 3: Managing fiscal decentralisation

The overall aim of the Fiscal Decentralisation Strategy is it to put into place the necessary institutional arrangements to effectively:

1. Strengthen the capacity of central government to oversee local government services and financial management
2. Coordinate the process of decentralisation, including by ensuring consistency between sectors and with the broader reforms to financial management and the public service
3. Promote dialogue between the central and central government to resolve issues related to the financing, monitoring, and delivery of local government services

Among the notable speakers at the opening of the two days’ workshop were:-

1. Abdurrahman Aideed “SOLTECO”, the Mayor of Hargeisa.
2. Professor Abdi Ali Jama , representing the Ministry of Education.
3. Mohamed Abdi Bade, Accountant General (AG).
4. Abdifatah Said Ahmed, the Director –General in the Ministry of Interior.
5. Abdishakur Mahmoud Hassan, the Mayor of the Port city of Berbera.
6. Mohamed Amin Omer, the Mayor of Gabiley Town.
7. Hussein Mahmoud Jicir, the former Mayor of Hargeisa.

Executive summary of Fiscal Decentralisation Strategy for Somaliland

Fiscal Decentralisation Strategy provides a framework for strengthening the systems and capacities for financing local governments to deliver basic services in Somaliland. The government has already established a system of local governments. Though capacity is uneven, most Grade A to C districts are able to provide core municipal functions, while services in the health, education and water sectors are provided by the  central government through  regional and district departments and by donor-funded organisations.

The government has outlined its ambition to decentralise more of these services in the Decentralisation Policy (2013-2020). This requires the right mix of political, administrative and fiscal capacity at the local government level, and a strong centre that can ensure that local governments adhere to the set guidelines. However, there is no one right way to do this, so the strategy sets out a process for building on the existing foundations in a way that fits the political, social and economic context of Somaliland. It considers the practical steps needed to make improvements and resolve key policy decisions in three areas:

1. Making the existing systems work better.
2. Strengthening sectoral service delivery.
3. Management of fiscal decentralisation.

The Fiscal Decentralisation Strategy is informed by the detailed LG financing assessment and is accompanied by an Action Plan that outlines the immediate actions to be implemented as well as the roles and implications of the Strategy to the different stakeholders.

Making the existing systems work better

Many of the basics of fiscal decentralisation are already in place, particularly in Grade A-C districts. Elected mayors and local councils are in place. Local governments collect a variety of revenues and the central government provides a block transfer, the municipal subsidy. The Local Development Fund is a discretionary capital grant provided under the JPLG/UNCDF to eight LGs. Basic PFM systems are also being established especially in districts supported by the JPLG. Grade A to C districts provide core municipal functions notably public works and solid waste management.

However, a number of key challenges remain to be addressed. Revenues (and by extension expenditures) are inequitable. Transfers maintain the inequities because they are weighted heavily to the larger districts. They are also unreliable and not transparent, which makes planning for services difficult. Many districts – especially outside the JPLG-supported areas – have yet to put in place the basic systems needed for budget preparation, execution and reporting. Those that have do not apply the same guidelines in the same way, which makes central oversight challenging.

This strategy outlines options for addressing these issues:

• Improving revenue collection and administration by improving and extending support offered to JPLG districts to other local governments and resolving disagreements in tax responsibilities between central and local government.
• Improve the allocation of the municipal subsidy, the transparency of allocations and the reliability of disbursements.
• Establishing a Discretionary Development Grant (DDG) to finance local government development expenditures. This would broaden the existing Local Development Fund (LDF) to provide funding to non-JPLG districts. This would provide a vehicle for channelling additional government and external donor resources to districts for development.
• Strengthening district PFM systems, especially for non-JPLG districts. The Government should issue harmonised guidelines for planning, budgeting, procurement, accounting, reporting and other aspects of PFM. Support will be needed to establish and embed these guidelines, and the functions which provide oversight of their application (internal audit, finance committees). A suitable IT platform to support these processes should also be identified.

Some of these reforms have already begun. Notably, the JPLG programme has helped some local governments build their capacity for PFM and revenue management. However, broader policy debates still need to be held on how much of the central government budget should be allocated for local government services, to which districts and for what purposes. These debates need to be initiated within the government.

Strengthening sectoral service delivery

Unlike core municipal functions, the delivery of services such as health and education requires fundamental dialogue as these services are currently centrally delivered and decentralisation would require significant changes in the way the services are currently managed. Most are implemented directly by the central government through regional and district offices (such as education) or by NGOs overseen by the central government (such as health).

The aim of the strategy is to initiate a process to resolve the key issues in each sector in a consistent manner, so that at the end of the processes the mandates of districts are agreed and resources identified to allow them to fulfil those mandates. Resolving these issues will take time, but the approach recommended is to start by:

• Improving the design and implementation of service delivery transfer pilots so as to further test the mechanisms for planning, financing, management and oversight of service delivery and draw lessons for informing the future refinement of financing arrangements for the services under the mandate of local governments.
• Initiating a process of discussing and resolving policy issues required to strengthen service delivery including identifying the challenges hampering service delivery, deciding the functions that can be better delivered at the LG level, the required systems and capacities and the role of central government in ensuring the proper delivery of these services.
• Developing mechanisms to ensure that if a decision is made to decentralise services, the LGs are provided with financial resources to implement the decentralised functions.
• Establishing a process for managing service delivery including establishing and supporting the operation of structures and coordination mechanisms for developing a coherent approach to resolving policy issues, ensuring the appropriate design and overall management and financing the delivery of services.

Management of Fiscal Decentralisation

An effective decentralisation process requires a strong central government – for oversight, dialogue and coordination. Currently, the central government structures in the MOF, MOI and line ministries do not have sufficient human or financial capacities to provide the necessary guidelines, support and oversight to local governments to deliver services and manage transfers effectively.  There is also limited dialogue between central and local government on issues related to local government management and financing of local services. Finally, fiscal decentralisation is currently fragmented across three reform processes – one focussing on decentralisation, the second on PFM, and the third on civil service – which are not closely coordinated.

For these reasons the strategy proposes strengthening central government’s capacity to manage fiscal decentralisation in three areas:

• Strengthen the capacities of central government agencies to: (i) develop policies and systems in partnership with LGs; (ii) manage the system of fiscal transfers; (iii) support LGs to perform; and (iv) enforce adherence a fair set of rules.
• Ensure that the PFM, decentralisation and civil service reforms are well coordinated and consistent
• Facilitate regular dialogue between central and local government on issues regarding financing decentralised service delivery

The implementation process

The Fiscal Decentralisation Strategy is intended to give a sense of direction rather than a blueprint. The implementation will focus on government ownership and attaining quick wins by starting from improving the existing system. It emphasises ongoing dialoguing and an organic process of resolving policy issues within and across sectors.  The strategy also focusses on strengthening the central government to perform their support and oversight roles but also to own and coordinate the overall process for reforming and improving the delivery of services.

The strategy is accompanied by an Action Plan that details the issues and assigns indicative responsibilities for resolving the key issues under each theme. It is not the aim to provide a fixed plan for implementation, which would not fit the changing political, economic and social context in Somaliland or the realities of institutional reform. Key policy issues will change as reforms develop and so will responsibilities. Therefore, the Action Plan focuses on short-term planning horizons and identifies priorities for the first three months which will need to be updated periodically – ideally at least every three months – in order to remain a relevant tool for coordinating reforms in a changing context.

Both central and local governments will require significant support to manage the process of implementing the strategy and action plan described above. The support will range from technical assistance to further design the systems, for institutional strengthening and ongoing support for reform design and implementation, coordination as well as for financing some of the elements of the reform e.g. the broadened discretional development grant and any sector transfers that may be introduced.