Promoting Greater Fiscal Discipline In Local Governance
Component 1 of the LGCSP focuses on the establishment of a more predictable and transparent fiscal framework for local governance within the framework of the national decentralisation policy. Through the Fiscal Decentralisation Unit of the Ministry of Finance, the LGCSP is supporting the review of all mechanisms for revenue mobilisation for local government authorities to ensure more predictability in revenue and expenditure streams.
Some key activities undertaken by the project towards the realisation of this objective includes the development of an intergovernmental fiscal policy, which includes the set of rules and regulation on central government transfers to local governments as well as guidelines for utilisation of these resources. The component also supports local government financial management reforms in budgeting, auditing, revenue management, asset management and social accountability.
Significant progress has been made on all areas of key reforms initiated by the project and districts assemblies are reporting some results in the key reform areas. The IGGF policy has been reviewed and approved by cabinet and provides policy direction for all fiscal decentralisation strategies and activities in Ghana.
Under the local government financial management reforms, some of the key results are the introduction and use of activity based composite budget in all 216 districts of the country. Of significant mention is the linkage of the district and national budget processes and templates, and use of standard codes and classifications at sub national and national levels. Composite budget on annual basis are loaded on the GIFMIS platform and sector specific funds released through the GIFMIS system are made direct to the MMDAs instead of routing the release through headquarters.
Also, linkages between medium term development plans and national policy frameworks have improved. The timely issuance of annual budget guidelines has improved and synchronized budget planning and formulation in line with government priorities for the and all transfers to the MMDAs. Budget allocations for all sources -DACF, DDF, UDG, as well as sector specific grants are now made available to the MMDAs for budget formulation. Direct sector specific transfers are now made to the MMDAs departments.
To make the budget process more open and transparent and to increase citizen participation in the process, 10 concurrent annual regional budget hearings have been instituted and MMA have been encouraged and supported to hold district budget hearings before the regional events. This has improved budget information flow to citizens and traditional authorities and created an important forum for citizens input into the budget process.
These have resulted in massive improvement in government budgeting and reporting process and a more open and transparent budgeting system. The use of warrants in the MMDAs has improved fiscal discipline in the MMDAs.
Funds released are always tied to planned activities in the budget thereby improving implementation.
To strengthen local revenue mobilisation, the projected supported the development of Internally Generated Fund Strategy and reference guide. There is evidence of increased awareness of the importance of mobilisation and management strategies. Monitoring of IGF revenue streams have improved significantly over the past 2 years with the revival of the national IGF technical working group. A number of MMAs have reported significant increase in IGF inflows. Between September 2014 and September 2015 records show an increase of 58% growth of in IGF.
Under the management of DACF, the project has supported the review of intergovernmental transfers to streamline and reduce deductions. In 2013 a circular was issued by Hon Minster for MLGRD to stop deductions on behalf of the MMDAs. DACF direct transfers to the MMDAs increased from 28% in 2012, 36% in 2013 37% in 2014, to 39% in 2015. This meant that more discretionary funds are being made available to the MMDAs to implement their MTDPs. The indirect transfers (paid by the DACF administrator on behalf of the MMDAs as deductions) reduced from 29.86% in 2012, 25.47%in 2013, 21.6%in 2014 to 21% in 2015.
The project is currently supporting the development of a local government borrowing bill. This bill will complement other reforms made under the project to contribute to having predictable and sustainable funding for local government s in Ghana.