Of district council funding

Malawi Government adopted the Decentralisation Policy in 1998, and in the same year, the Local Government Act (LGA) was enacted. The policy meant that district councils were central in implementing local governance and development agenda. In order for local governments to carry out their delegated authority from central government, there was need for a deliberate transfer of financial resources for implementing such functions.

The policy, therefore, suggested that at least five percent of the net national revenue be transferred to the sub-national governments as a general resource fund (GRF). Sectoral ministries were also given a corresponding percentage to be transferred to local governments as a second vertical fiscal transfer mechanism. At a local government level, a horizontal mechanism was formulated to share the resources with a view to achieve equitable distribution.

Fiscal imbalances between internal revenue and expenditure needs of local authorities (LA) have lead to the need for intergovernmental fiscal transfers (IGFT) in a decentralised system of governance in Malawi. IGFTs are designed to address such fiscal imbalances. Horizontal fiscal imbalance, or difference in the resource needs among LAs within the same level, occurs due to various reasons such as differences among LAs’ on their resource endowments, fiscal capacity and efforts, and cost of producing services due to differences in physical and infrastructural facilities

The LGA legislation led to the formation of National Local Government Committee (NLGFC) which oversees the implementation of fiscal decentralisation. It has the responsibility to ensure that IGFT is carried out using a formula approved by Parliament. The current formula was last approved 11 years ago in 2002.

This paper, therefore, argues that the formula that NLGFC uses to allocate resources to local councils is archaic, inefficient, inadequate and inequitable. The current GRF formula distributes resources with a weight of 80 percent based on population and 20 percent based on poverty indicators. The formulae for health, education and water have their own parameters.

Distance and geographical differences are not explicitly explained by the IGFT. Nthalire Health Centre, for example, is about 130 kilometres away from the nearest referral, Chitipa District Hospital. The road is in bad condition. Yet the council there receives less funding than geographically advantaged districts with higher populations. It costs more money to offer a similar service in Chitipa and other bigger districts with sparse populations. Also, Chitipa spends more money collecting its drugs from the Regional Medical Stores in Mzuzu than Nkhata Bay, for example, which is only 45 km away. Therefore, using population as a major parameter in the IGFT is quite arbitrary

Also, the formula does not take into account the variations in the type of councils, namely district, town, municipal and city. Therefore, the capricious allocations based on similar parameters when the financial needs of these categories of councils are different render the formula much more spurious and inefficient. When I was chief executive officer for Balaka Town Council two years ago, we received money meant for development projects under the LDF Open Window. The money transferred to Balaka Town at that time was not even enough for a single project because, comparatively, the population, which is the major weight in the archaic formula, was small. This implies that the formulae for district and urban councils must be different so that it can equitably address their local fiscal needs.

One other characteristic of an adequate IGFT is that it must have inbuilt incentives for the councils to generate more local revenue. The current formula does not reward councils that have efficient and effective revenue collection mechanisms. Without hanging a carrot, and without holding a stick, the councils will take the function of local revenue enhancement as ‘business as usual’.

I suggest that there should be different formulae for various sectors and categories of councils to address horizontal fiscal imbalances. n

The author is a development economist working as director of finance for M’mbelwa District Council but writes in his personal capacity.