Institutional Capacity

The focal point for local government institutional capacity includes assigning revenues and expenditures to ensure that local governments have the revenues with which to finance local expenditures; improving the transfer system; and introducing transparent and reliable reporting systems. These measures are predicated on an effective fiscal system that binds different tiers of government. Equally important in the evolution of local government institutional capacity is the regulatory framework of the financial sector, particularly as it relates to borrowing by sub-sovereign governments to remove institutional problems that give rise to unsustainable sub-sovereign borrowing.