Central transfer, low capacity to generate revenue at local level key challenges

The dominance of central transfers and low capacity to generate revenues at the local level are two key challenges to South Asia with regard to local finances, according to World Bank’s country director for Nepal and Bangladesh Ellen Goldstein.

Though global experiences demonstrate that local governments are best placed to provide services according to local needs and preferences, in South Asia, local fiscal and financial capacity need to keep pace with the increasing responsibilities, she said, addressing a cross country learning forum 'Strengthening Local Government Finances for Better Service Delivery and Greater Accountability', organised jointly by the Swiss Development Cooperation (SDC) and World Bank (WB) here today.

"To exercise autonomy, local governments need to generate their own revenues through taxes, fees, user charges, and other forms of cost recovery and borrowings," she added.

"There should be clearly defined functional responsibilities, and funded and fiscal transfers should be received in adequate amounts and on time," she said, adding that local governments need to mobilise new resources and increase their capacity to borrow responsibly for investments in local services. "Finally, local governments need to seek ways to attract private participation to finance and deliver local public services."

The three-day forum brings together over 80 policy makers and local finance practitioners from central, state and local governments from various Asian nations. It aims to provide participants a platform to share experiences in reform processes at the local, state and federal levels with regard to local finances, and good practices and instruments.

Goldstein also highlighted the World Bank’s support for local governance programmes across the South Asian region.

In Bangladesh, the Local Governance Support Project supports 4,501 rural local governments, whereas in Pakistan, the Punjab Municipal Services Project supports 135 small local governments.

Similarly, in Afghanistan, policy analysis is helping shape the sub-national system and enhance decentralisation, and in Nepal, the 'Emerging Towns Project' supports intergovernmental frameworks and strengthening infrastructure and services in small and medium sized municipalities.

In India, the recently approved Local Governance and Service Delivery Projects in West Bengal and Kerala reach to about 2,000 small local governments.

"However, inter-governmental fiscal frameworks need reforms," Goldstein added.