1. Diagnosing LG Budgetary Processes and Institutions
Sudharshan Canagarajah

2. Background
Role of LG budget and institutions is very important and most neglected area for addressing poverty and growth issues
Bank was concerned about central government budget/institutions in 1990s
Now it is clear without LG reforms - service delivery, poverty reduction and growth are difficult
There is increasing AAA on LG; PERs are discussing them; HIPC AAP looks at this
Today many LG projects addressing capacity/service delivery challenges

3. Background to Uganda LG
LG played an important role in Uganda development process for more than 50 years - layers LC1-LC5
LGs received 18% in 1997/8 as transfers from CG; 2003/ % (approx US$400 million)
Transfers account for 87% LG revenue
Conditional grants guiding national priorities at LG level 70% in 1997/8 to 80% 2003/04
Today 37 separate conditional grants (earlier 70)
Number of districts 45 to 56 in last four years

4. Uganda PFM/CIFA
Sound PFM at CG/LG is important to all stakeholders – taxpayers, MPs, councillors, private sector, beneficiaries, donors and govt.
Uganda’s CIFA report was a response to this need - budgetary, accountability and transparency
Provides a first step towards a single standard assessment of public financial magt for all levels of govt in Uganda.
Common Assessment of fiduciary risks

5. Fiduciary Risk LGIFA Objective Public expenditure unaccounted for.
Funds used not for intended purposes.
Expenditures far short of value-for-money
LGIFA Objective
Carry out an assessment of public financial management systems and practices in Ugandan Local Government, including establishing:
Progress made; and Priorities for the future
Benchmarked financial management in:
Apac, Jinja, Kabale and Tororo Districts, and Masaka Municipality

6. The Contradiction in Uganda’s Fiscal Decentralisation Process
Large increases in resources to local governments enabling large scale delivery of services through many earmarked conditional grants
Earmarking of resources has reduced local choice the key rationale for strengthening local accountability and responsiveness of service to local need
but
Central vs
Local
Fiduciary Assurance

7. Integrated Assessment
High Level Fiduciary Concerns
Realism of the Budget
Financial Management Capacity
Political & Managerial Environment (not benchmarked)
Corruption (not benchmarked)
Stages in the budget cycle
Linking Policies, Plans and Budgets
Raising Revenues, Deploying Revenues and Carrying out Activities
Including Procurement
Reporting on the Use of Resources and Achievement of Results
Holding LGs to Account for their Performance

8. Overview of Benchmarking Results
% Benchmarks met
Apac
Jinja
Kabale
Masaka MC
Tororo
Average
Primary Budget Outturns 33 78 56 40
MT Plan & Budget Formulation 46 41 70 54 50
External Accountability & Audit 59 71 53
Financial Management Capacity 64 73 55 62
Budget Execution 74 82 69
Accounting & Reporting 89 81
Average Score 58 65

9. High Level Fiduciary Concerns
Assurances
Strong PFM systems enable services to be delivered largely as intended in both strong and weak LGs
Risks
Unrealistic LG Budgets weak tools for articulating and implementing LG objectives
Weak political understanding of decisions made budget cycle means budgets less responsive to local priorities
Accountability of LGs to the public remains weak
Poor political and managerial relations means that weak local governments remain weak
Corruption continues to undermine service provision
Inadequate technical support undermines new initiatives

10. High Level Budget Outturns
Key Fiscal Performance Indicators
Budget Outturns 2002/3
Mean
Best
Poorest
Total Expenditure as % of Budgeted Expenditure
87%
97% J
67% M
Total Revenue as % of Budgeted Revenue
91%
99%
83%
Local Revenue Received as % Budgeted LR
76%
88%
68% K
Local Revenue Received as % Total Revenue
2.5%
3.3%
2.0% T
Average % Department Expenditure Deviation
25%
10%
50% A
Average Level of Arrears as % Total Expenditure 7% 1%
13%
Currently budgets are unrealistic and weak tools for implementing Local Government Objectives
Big differences in the realism across LGs
Unreliability biggest at sector level
Budget Outturns were Benchmarked, only 40% met

11. Planning and Budgeting
Assurances
There are adequate technical planning and budgeting skills to deliver a coherent budget process within LGs
Improved policies and guidelines being developed which address many of the key weaknesses
Risks
Development Plans may remain unrealistic, and inadequately linked to the BFP and budget
Budgets may continue to be inadequate tools for implementing local government policies, due to unrealism & the lack of contestability over resources.
Plans and budgets may remain weak decision making tools for council, as they may be continued to be presented as a technical not political documents

12. Raising Revenue & Deploying Resources
Assurance
Systems enable LGs to deploy resources and undertake activities and deliver services with an increasing degree of financial control
Risks
Low local revenues will continue to undermine autonomy and local accountability to citizens
Procurement processes remain inefficient due to inadequate technical expertise & political interference.
Execution is unpredictable for sectors, due to weak cash, commitment control & procurement planning.
Internal audit’s involvement in pre-audit undermines its ability to carry out objective audits of LG systems,
LCs appear able to alter planned activities during FY

13. Reporting on Use of Resources
Assurance
There are regular flows of information on finances and performance during the financial year
Risks
The emphasis or reporting remains vertical which undermines the importance of budgets & workplans
Reports will continue to be presented in technical way inaccessible to the public and politicians
Without annual performance report, the tools for reviewing LG performance against plans.are limited
Monitoring will remain ad-hoc and poorly focused
The use of user committees and subcounties in monitoring service provision remains un-exploited, and thus grassroots accountability will remain weak.

14. Holding LGs to Account Assurance Risks
Vertical accountability systems, such as performance assessments, audits, and the LGAC do provide central government with some fiduciary assurance
Risks
If LGs do not become more actively transparent institutions, then there is likely to remain little demand for local accountability from local governments
Without more structured performance assessments of services, there will remain significant variations in performance, and little incentive to improve
If councils remain inactive in reviewing performance, services can’t be locally accountable & responsive
If subcounty accounts are un-audited, then the risk of misspending resources at lower levels is increased

15. Key findings Low local revenues undermine autonomy.
Development plans weakly linked to BFP/budget
Budget execution is unpredictable for sectors and LGs
Emphasis of reporting remains vertical
Monitoring remains ad hoc and poorly focused
Procurement process remains inefficient
Heterogeneity in LG performance