Councils’ long walk to fiscal autonomy

Remitting just half of the money Capital Hill is required by law and policy to local government areas (LGAs) signals Lilongwe’s determination to maintain fiscal power over locals, public policy experts say.

Catholic Commission for Justice and Peace (CCJP) national coordinator Boniface Chibwana said in an interview last month that poor funding to councils shows central government’s reluctance to fully cede financial autonomy to local councils.

He said the share of the national cake to councils is increasingly diverging from the 2002 Intergovernmental Fiscal Transfer Formula (IGFTF) in which government committed to send five percent of national revenues to councils.

“The failure of the central government to transfer five percent of national revenue as required by the 1998 Decentralisation Policy further manifests the stifling of local council powers in managing the local development budget to effectively steer local development in Malawi.

“Ordinarily, local councils do not have adequate powers to manage the local development budget. For instance, there is no full devolution of financial functions such that Capital Hill still clings to all the major sources of revenue at the local level,” said Chibwana.

His position follows concerns from Financial Managers Network (FMN) chairperson Ellen Kayira, that fiscal decentralisation have been slow.

“Central government must consider transferring the five percent of ceded revenues to the councils. Also, central government should transfer the financial resources for all the devolved functions to respond to the programme-based budgets currently being implemented.

“We also recommend that central government must review the fiscal transfer formula,” said Kayira, who is also director of finance for Mulanje District Council.

According to the Decentralisation Policy and the Local Government Act, government is expected to transfer five percent of Net National Revenues (NNR), that is, excluding grants to local councils, as General Resources Fund (GRF) or Unconditional Grants.

Our analysis shows that this requirement has not been achieved over the past years. For instance, allocation to GRF for the 2012/2013 financial year was K1.153 billion against the actual NNR of K214.3 billion, representing 0.5 percent of the NNR, which is way below the five percent threshold.

In the 2014/2015 financial year, the allocation to the GRF was K2.37 billion against the NNR of K525.3 billion, representing 0.45 percent of the net revenue.

In the 2019/20 budget, K256.5 billion was budgeted for local authorities. However, the K41.3 billion transferred translated to 2.9 percent of domestic revenue (K1.42 trillion), down from four percent in 2018/19, according to 2019/20 Unicef National Budget Brief.

In the 2020/21 National Budget, the approved budget to the councils was K42.7 billion and as at March 31 2021, the councils had used K33.4 billion, or 78 percent of the total allocation.

Kayira also worries that even political devolution has now slowed.

“There is a slow pace of fiscal decentralisation versus accelerated devolution of other functions such as human resource evolution, chiefs administration, payroll management, lands and estate management, and programmes implemented by devolved sectors,” she said in her presentation last month on behalf of all district councils, during a virtual 2021/22 pre-budget consultation meeting with Minister of Finance Felix Mlusu.

Kayira also complained that councils are currently being overstretched on GRF budget, stressing that GRF budgets have not significantly been revised despite the inclusion of councillors’ perks and other activities relating to councils and functions.

In the 2020/21 National Budget, government revised councillors’ honoraria upwards by 50 percent, but without revising the GRF budget.

Deficient fiscal devolution

Fiscal devolution is considered one of the critical processes of decentralisation as it consists of devolving revenue and expenditure functions from central to local governments.

Documents we have reviewed show that fiscal decentralisation started with devolution of the three sectors of health, agriculture and education with a total budget of K3 billion.

Currently, 18 sectors have devolved with a total council budget of K256 billion, the bulk of which is for personal emoluments, including wages and salaries.

“The resources that are being transferred to councils are not enough to implement the devolved functions.  For instance, in the 2019/20 financial year, a total of K215 billion, out of the K256 billion total budget, is for personnel emoluments and the budget for implementing the devolved functions is only K41 billion,” it says.

The remaining K41 billion—which is around 16 percent of the councils combined budget for 2019/20—is left to finance both other recurrent transactions (ORT) such as travel expenses and utility bills as well as development or capital projects such as borehole drilling.

Given that ORT takes up at least 80 percent of the budget across government, this means insignificant amounts are left for public capital investments.

Fiscal decentralisation efforts’ main achievements include the allocation of a vote to each council and National Local Government Finance Committee (NLGFC); the appointment of district commissioners (DCs) and chief executives of cities, municipalities and towns as controlling officers; as well as the roll-out and running of the integrated financial Management information system (Ifmis) to almost all the councils.

However, sources at NLGFC told Weekend Nation that there is inadequate use of Ifmis by most councils.

The sources also said the development budget is also highly fragmented; hence, affecting implementation of priorities contained in council plans.

Corroborating our findings, a former DC—who did not want to be named—said: “There are indeed a number of areas which we can proudly say we have attained as a country in terms fiscal devolution.

For instance we now have Ifmis at council level and this is one of the success stories. But then, to a larger extent, there are more challenges when it comes to achieving this fiscal devolution full-throttle as most of the functions in this area are still performed by the central government.”

According to the ex-DC, councils should be encouraged to collect more local revenue to achieve autonomy.

The former DC said he was basing his responses on the outcomes of a review of the second National Decentralisation Programme (NDP II), which the Ministry of Local Government and Rural Development and the United Nations Development Programme jointly conducted in 2014.