FISCAL DECENTRALIZATION IN BALOCHISTAN

SYED FAZL- E- HAIDER
May 26 - June 01, 2008

Devolution is the gradual process of transferring power and resources from central government to the lower levels of government, such as the provinces, districts and tehsils/towns. There is still no comprehensive system for district government accounting to adequately support local financial arrangements in Balochistan. Though many new institutions have been established by the Balochistan Local Government Ordinance (BLGO) like Provincial Finance Commission (PFC) and local government commission (LGC), they are not functioning effectively. They still lack institutional processes.

Fiscal decentralization is however a challenging task, which requires an improved fiscal transfer system from provincial government to district governments. Funding for the local government needs to be strengthened. The designs of the provincial transfer system need further improvements, particularly to ensure equitable and adequate resource distribution.

Under the BLGO 2001, the local governments are required to prepare their own budgets for which the district government officers lack professionalism. Areas which need to be handled with expertise are framing of fiscal transfer rules and rules of business, preparation of first annual report, preparation of databases to support analytic work of the PFC, assessment of revenue potential of local governments, determination of unit costs of service delivery and the training of PFC staff in rules and mechanisms governing inter-governmental transfers. All these are key issues related to fiscal decentralization.

Local governments lack the operational funds and money for development. Elected counselors and other stakeholders lack the ability to fully understand their responsibilities. Institutional capacity building is necessary to rejuvenate fiscal decentralization. Institutional development of the PFC in Balochistan is yet to be carried out. It is vital to sustain the process of fiscal decentralization. The PFC needs adequate resources to carry out activities required for its analysis like surveys and database development. The provincial finance department has so far not been able to provide this necessary support. The main reason has been the resource constraint of the provincial government. The development of resource management systems requires the medium-term budget planning, service standards and monitoring and evaluation systems.

Balochistan also lacks awareness about basic approaches and tools of fiscal decentralization. Social indicators are lower than other provinces with similar per capita income. It means that improving service delivery is a pressing task for the government. The budgeting is a critical tool of local government finance. A strong budgeting and financial system establishes the basis for financial control and provides uniform and timely financial information.

Institutional factors, such as political, social, legal, and economic conditions are important for the analysis of fiscal decentralization. The institutional context of fiscal decentralization entails the overall economic development, the nature of the legal system, ongoing process of economic and political reform, the organization of monetary and financial institutions, and tensions arising from economic differences. This institutional background determines the design of intergovernmental financial system and ultimately affects the outcome of fiscal decentralization reform process.

Efficient accounting is the key to effective budgeting and planning. The responsibility for accounting at the local level is with the District Accounts Offices and Tehsil Accounts Offices. This requires suitable accounting systems and capacity building. Accurate municipal accounting systems provide the tools and techniques necessary for public sector managers to assemble, analyze, and report financial data such that it may be used for planning, decision making and cost and budget control. The purpose of accounting is to provide financial information which is accurate, complete, timely, and in a form that is understandable to users. An accounting system consists of an integrated structure of source documents, journals, ledgers and procedures used to determine the financial position of the municipality. The accounting process involves the composite activity of recording, summarizing, analyzing and interpreting financial transactions.

Auditing is the systematic process of verifying the reliability of financial reports and the appropriateness of the underlying financial activities. By definition an audit is an examination of systems, procedures, programs and financial data. The end product of an audit is a report issued by an independent auditor describing how well a municipal government's financial statements describe its financial conditions and the results of its operations.

Budgeting and financial management procedures are simply the accounting manifestation of public policy. The proper public financial management adequately controls the total level of revenue and expenditure; appropriately allocate public resources among sectors and programs; and, ensure that governmental institutions operate as efficiently as possible. The tehsil officer (TO) (finance) is responsible for preparation of the tehsil municipal administration (TMA) budget. But most officers posted as TO (Finance) do not have the necessary skills and experience to effectively work on finance and budget matters.

Reforms are needed in areas like intergovernmental fiscal transfers and local revenue generation. More than 80% of local government funds on average will come from transfers. In order to ensure fiscal stability, timely, predictable and transparent transfers are essential. The PFC has responsibility for this, but lacks institutional strength. Mechanisms are also needed to help local revenue generation and allow fiscal flexibility.

The PFC had been established to regulate the transfer of funds to local government.

Its role in determining formula-based transfers to local governments makes it an important body in local governance. It can perform its role in ensuring predictable, timely and adequate resource transfers to local governments.

Effective national development and poverty alleviation often hinges on improved local growth and service delivery. This requires overcoming economic and social disparities across regions, and among urban and rural areas; reforming the fiscal, political, and administrative framework in which local governments operate; and enhancing engagement with local governments and stakeholders. Balochistan presents a classic case in context of these issues and problems in the way of fiscal decentralization. The capacity building of stakeholders in local government system covers the areas like theoretical and applied dimensions of intergovernmental fiscal relations, including expenditure assignments, revenue assignments, transfers, and local borrowing. It also covers the intensive computer modeling component with particular emphasis on techniques for simulating the assignment of expenditure responsibilities, revenue sources and intergovernmental transfer schemes. It focuses on specific fiscal policy issues, such as sharing responsibilities for education between different levels of government, revenue opportunities for local governments, and stimulating regional economic growth through tax incentives and subsidies.