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Decentralization in South Asia

Decentralization in South Asia
Decentralization in South Asia

Decentralization involves the transfer of political, fiscal and administrative responsibilities and powers from the central government to intermediate and local governments. It enables the establishment of mechanisms by which citizens can hold the lowest tier of government accountable.

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Decentralization is perhaps one of the most important governance and institutional reform initiatives towards reducing poverty in South Asia. Decentralization involves the transfer of political, fiscal and administrative responsibilities and powers from the central government to intermediate and local governments. It enables the establishment of mechanisms by which citizens can hold different tiers of government accountable.

The economic rationale to support this reform is that local governments, being closer to their constituencies, may be more responsive to local needs, and consequently, provide public services more efficiently.

Successful decentralization must take into account political, fiscal and administrative dimensions. Political decentralization is essential for decision-making power. Fiscal and administrative decentralization are necessary to implement decisions, have appropriate financial and human resources, deliver services effectively, and have accountability.

Political decentralization usually requires changes in constitutions and legal frameworks. Several South Asian countries in one way or another have moved ahead with political decentralization.

India, Pakistan, Bangladesh, Sri Lanka, Nepal, and Bhutan have adopted changes in their constitutions and legal frameworks to re-define the roles, functions and functionaries of local governments. There are different reasons as to why these countries have pursued (or are pursing) decentralization.

Table 1: South Asia Decentralization: Simple Typology
CountryKey featurePossible reason underlying decentralization
IndiaFederal State with strong State GovernmentsAlternative to domineering bureaucracy from colonial times
PakistanBig-bang approachLegitimacy of military regime
BangladeshUnitary StateDemographic growth of Dhaka; NGOs wanting political space
Sri-LankaUnitary StateCreate public sector jobs in a country in conflict
NepalRepresentative MonarchyEarlier: donor pressure; Now: manage conflict by redistributing powers and improving services
BhutanMonarchyTo counter weight the emergence of an oligarchy as country opens up

India’s 73rd and 74th Constitutional Amendments, issued in 1992, enshrined devolution in the Constitution of India and mandated that states hold regular elections and transfer funds and functions to the third tier of government—urban and rural local governments.

Pakistan embarked upon a far-reaching devolution plan in 2000-2001 to transfer central powers to new local governments. Devolution was aimed at: injecting new blood into the political system, including marginalized citizens in formal politics, and contributing to strong accountability between new politicians and local electorates. In December 2008, the Prime Minister constituted a committee to revisit the Local Government Ordinance, 2001. Some argue that this is in attempt to strengthen the local government system. Others argue that the intention of the government may be different.

Bangladesh, has had a long history of rural local governments (the Union Parishads), although with limited powers and a long history of community based systems of service delivery and NGOs. The Constitution of Bangladesh, in Articles 59 and 60, has laid down a framework concerning local government bodies. Bangladesh has been a parliamentary democracy since a constitutional amendment in 1991. After the recent elections in December 2008, efforts to enhance democracy and to reduce corruption are expected to remain high on the agenda of the Government of Bangladesh. The expectations are that decentralization will be one of the pillars to achieve these objectives.

In Bhutan, the 9th Five-year Plan (2002/03–2006/07) and 10th Five-year Plan (2008/09−2012/13) focus on the needs of the gewogs (rural communities) and dzongkhags (districts). Devolution of resources and decision-making powers to the local level is a key aim of the Plans.

In Afghanistan, Nepal, and Sri Lanka, decentralization is expected to play a major role in the peace building process; however, the process is likely to evolve slowly in the face of the conflicts and complex political environments in the countries.

In Afghanistan, at present, there is no strong preference for substantial political devolution to sub-national levels. The Constitution refers to “preserving the principles of centralism”. Similarly, the current political establishment is committed to the current, de jure, centralized inter-governmental structure. Security concerns will remain a major concern in the coming years. The 2009 presidential election and parliamentary elections in 2010 will heavily impact the future policy direction, including relations between the center and the subnational governments.

In Nepal, the Local Self Government Act of 1999 defined three types of local bodies and endowed them with some revenue powers and expenditure responsibilities. Presently, Nepal is undergoing a delicate transition from monarchy and is expected to move towards the model of a federal state. In this context, the roles of the different tiers of government, the number of tiers, and the nature of fiscal flows are all being debated and discussed. The political environment remains fragile, resulting in uncertainty about the future of intergovernmental fiscal relations in Nepal. Nepal is rewriting its constitution and redefining its intergovernmental structure from a unitary state toward a federal state. This will define the future of the decentralization strategy.

Sri Lanka’s 13th Constitutional Amendment in 1987 called for substantial decentralization reform in the public sector and in service delivery. The reforms are meant to be part of the peace strategy aimed at addressing the issues of ethnicity and local autonomy in the context of the civil war. Improved service delivery is an implicit goal. Local governments are the third tier under the purview of the newly created provincial councils. Despite the amendment, however, the Government structure remains centralized; almost all provincial activities are tightly controlled by the Center and local authorities have limited fiscal and administrative authority.

Key Challenges

In general, although political decentralization has taken place, fiscal and administrative decentralization lag behind in most of the South Asian countries. Common challenges in the region include:

- Institutional capacity is yet to be developed;
- Roles and functions overlap at different levels of the local governments;
- Fiscal transfer systems from central government to local governments are not clearly defined;
- Accountability and authority have not been clarified; and
- Human and financial resources are not sufficient.

Effective service delivery will, therefore, require central, provincial and local actions, such as: (i) streamlining budget spending processes and procedures; (ii) enhancing local revenue mobilization; (iii) promoting transparency, mechanisms of accountability, and citizens’ voice; (iv) improving incentives for performance; and (v) building systems to monitor outcomes and support capacity building. Key improvements in decentralization of public services to the local tiers will continue to depend on the political commitment to strengthening local governance.

World Bank Support

- Policy support including analytical studies on key issues, policy dialogue, and workshops and seminars.

- Lending projects aiming to improve key services (education, health, water supply, and infrastructure) through decentralization, strengthen local governments’ capacity, promote institutional reform, and empower communities.

- Since 2002, the Bank’s support on decentralization has focused on Economic and Sector Work (ESW), Non-Lending Technical Assistance (NLTA), and lending programs. The assistance is built on the Bank’s credibility, trust, and partnership with the clients. The work program started with understanding the intergovernmental fiscal frameworks including expenditure assignments, policy forums, workshops, and executive courses.

- In India, the Bank is supporting the Karnataka Panchayat Strengthening Project.

- In Bangladesh, the Bank is supporting the Local Governance Support Project.

- The specific investment loans made to Karnataka in India, and to Bangladesh, are the first loans in the SAR that support local governments directly. Their design is based on providing predictable and discretionary fiscal resources directly to local governments, and using these fiscal flows to build mechanisms of accountability (auditing systems, financial management systems, and citizen’s oversight and participation in the budgeting processes), improved own-revenue generation, and capacity development.

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