INTERNATIONAL FOOD
POLICY RESEARCH INSTITUTE
sustainable solutions for ending hunger and poverty
Ghana Strategy Support Program
Fiscal Decentralisation
What Role could Local Government
Finances Play for Agriculture?
Tewodaj Mogues
Sam Benin
Godsway Cudjoe
Fiscal Feasibility Challenge
• Increasing public investments in and for agriculture raises
questions as to how to make this fiscally feasible
• Fiscal feasibility constraint relaxed by increasing
• “Technical efficiency” (in the use of resources)
• “Allocative efficiency” (of service provision)
• Quantity (of revenues)
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 2
Fiscal Decentralisation
• One tool for achieving this is fiscal decentralisation, and increase of
districts’ internally generated revenues (IGRs)
• Technical efficiency: Citizens’ stronger incentives to demand better
services from local authorities when they pay taxes to them
• Allocative efficiency: District governments can draw on information
about local needs and conditions to allocate resources accordingly;
more IGRs affords them more discretion to do so
• Quantity: Local governments can tap into revenue bases to which
they have better access than central government
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 3
Incentives for Own-Revenue generation
• For District Assemblies to effectively generate own
revenues, they must have incentives to do so
• Decentralisation Policy Review:
“Although the DACF formulae contains a small incentive to improve
on IGF [...], this is not perceived sufficient to promote improvements
in the MMDA revenue mobilisation. [...] The incentives to collect
revenues may be impacted negatively by the increase in grants.
Further studies of this and of the real MMDA revenue potential within
the existing legal framework is urgently required.”
• Recently commenced study in GSSP examines the
effects of external funds flows to DAs on their incentives
to increase IGRs
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 4
Districts’ External and Internal Funds
• IGRs are a small, but not negligible, fraction of total
District Assembly revenues: 16%
• However, share of IGR in DA revenues has been
shrinking, given
• hardly any increase in internal revenue generation
• precipitous increases in external transfers
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 5
Growth of IGRs and External Funds
Trends in per capita local revenues (in 2000 cedis)
40,000
35,000
30,000
cedis
25,000
20,000
15,000
10,000
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
External
funds
1994
IGRs
5,000
Page 6
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Ejura/Sekyedu
Kumasi
Adansi West
Ejisu/Juaben
Offinso
Ahafo Ano
North
Ashanti Akim
N
Bosomtwi
Amansie East
Afigya
Sekyere
Sekyere West
Afigya/Kwabre
Amansie
West
Atwima
Ahafo Ano
South
Adansi East
Ashanti Akim
S
Sekyere East
cedis
Scope for increasing local revenue effort
Per capita IGR in Ashanti Region, 2004
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
Page 7
Scope for increasing local revenue effort
2,200
2,000
1,800
1,600
1,400
1,200
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
West Gonja
Tamale
Yendi
Bole
GushieguKaraga
ChereponiSaboba
West
Mamprusi
ZabsuguTatale
SaveluguNanton
East Gonja
Nanumba
TolonKumbungu
1,000
800
600
400
200
0
East
Mamprusi
cedis
Per capita IGR in Northern Region, 2004
Page 8
Current and future incentive schemes
• Magnitudes of Average per capita public budgets at the
local and central government level for 2004 (in 2000
cedis):
• Local Government IGR per capita:
• Local Government budget per capita:
4,035 cedis
40,773 cedis
• Central Government budget per capita: 490,692 cedis
• Current fiscal incentive system weak, but promising
reforms being piloted (the prospects of which the
aforementioned study will assess)
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 9
Fiscal Decentralisation and Agriculture
• District governments play only a very limited role in
agriculture
• Therefore, several of the other reforms would have to
take place before fiscal decentralisation can have a direct
and immediate effect on agriculture
• However, even without/prior to these reforms, potential
indirect effects:
• Financing effects: Impact of (increased) local revenue
generation on farmers and agriculture in general?
• Expenditure Effects: Contribution for agriculture of improved
local service delivery in other sectors (health, education, roads)?
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 10
Fiscal Decentralisation and Agriculture
• With reforms leading to greater involvement of District
Governments in agriculture:
• DAs’ expenditure assignments in agriculture should be in
accordance with principle of subsidiarity (in this case e.g.
agricultural extension, but not agricultural research)
• Sequence appropriately assignment of expenditure responsibilities
and development of capacity to undertake service delivery
• Establishment of concurrent responsibilities, and performance
measurement on basis of responsibilites, to avoid spending ‘too
little’ on agriculture in favour of perceived more pressing needs
Ghana Strategy Support Program
INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE
Page 11
INTERNATIONAL FOOD
POLICY RESEARCH INSTITUTE
sustainable solutions for ending hunger and poverty
Ghana Strategy Support Program
Fiscal Decentralisation
What Role could Local Government
Finances Play for Agriculture?
Tewodaj Mogues
Sam Benin
Godsway Cudjoe