rural-urban dynamics_report.pdf - Khazar University

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158 URBANIZATION AND THE MDGS GLOBAL MONITORING REPORT 2013 • In two-tier models, economies of scale may be limited at lower levels. As metropolitan areas encircle small municipalities, fragmentation may occur across jurisdictions, at the same time that further horizontal integration is limited for political reasons. • Organizational arrangements can be complex: regional transport authorities, public enterprises, and special-purpose districts, among others, are common, and coordination among these and with entities of the SNG can be problematic. • Metropolitan areas may not have the incentives to invest adequately in making complex services accessible in all sectors, including inpatient care, specialized medical treatment, and higher education, all of which have positive externalities and spillovers to other areas. Such underinvestment can be mitigated with grants from the central government, although that raises the question of alignment of the different compensation mechanisms. Bahl and Bird (2013) refer to India, where a large federal grant for urban infrastructure development and slum upgrading is allocated to cities on a matching basis. The program was introduced in 2005, and while it has succeeded in focusing increased attention on urban infrastructure issues, implementation progress has been slow. South Africa makes use of a more formal municipal infrastructure grant, designed primarily to improve services in poor neighborhoods. In Brazil, ad hoc grants are made to support specific projects. As a consequence, coordination with other levels of government and within the metropolitan areas are significant and, if not done well, can limit accountability and efficiency. Going forward: Three priorities for subnational governments If rural and urban SNGs are to successfully address the challenges to delivering basic services necessary to achieve the MDGs, three areas of future action are critical: improving public investment; fiscal equalization; and governance arrangements for accountability. Public investment Public investment is directly related to attainment of the MDGs because of its importance in closing infrastructure gaps in urban and rural areas (Alm 2010; Bahl and Bird 2013; Frank and Martinez-Vazquez 2013; Pagano 2011; Romeo and Smoke 2013). But the level of efficiency in public investment varies substantially across both developed and developing countries. Surveys done for the World Economic Forum in a sample of 94 countries worldwide indicate that some advanced countries have seen decreases in the quality of infrastructure, while some countries in the developing world have taken respectable leaps forward. Decentralized public investment is complex and might lead to inequity in spending. Project appraisal may not be sufficiently rigorous to weed out those with questionable impact, so cost and time overruns often do not become apparent until later stages—when sunk costs have to be accepted. Inequities in the distribution of assets across different jurisdictions can also be significant. Public investment often implies bulky infrastructure works offering localized benefits whose distribution is influenced by political economy factors. Together, these factors can undermine equity, one of the key aspects for achieving the MDGs. Improved public investment will require three actions. First, coordination across levels of government should be strengthened. Experience in developed countries (France, Spain) has underscored that this coordination requires reasonably strong fiscal levers. Chile, for instance, is coordinating public investment through regional investment windows, including cofinancing with municipalities. Second, institutional and process reform should allow “poor” projects to be weeded out before they gain traction and support— while projects with high returns should be selected. Korea, for instance, has successfully addressed the “optimism bias” by requiring reappraisal in projects with cost and time overruns. Third, equalization of public investment spending should be strengthened. With
GLOBAL MONITORING REPORT 2013 URBANIZATION AND THE MDGS 159 infrastructure gaps shifting among urban and rural areas at a quickening pace, the need for “place-based” responses to the service delivery challenge is increasing. This adequacy in resources should be provided in terms of a country’s entire expenditure needs, which include capital infrastructure, with the goal of creating a level playing field. Fiscal equalization The incidence of both revenues and expenditures is critical for MDG outcomes. These effects can be enhanced by establishing some level of equalization to address inequities in resource distribution (Blöchliger and Vammalle 2009; Boadway 2012; Dafflon 2012; OECD 2007). Changes in the patterns of urban-rural development imply three basic forces: citizens’ needs change because of ongoing changes in their demographic composition, poverty profiles, and income levels; costs of service provision are affected; and fiscal capacity is affected. Fiscal equalization can help address these factors. Equalization can be structured vertically (across different levels of government), horizontally (across and among jurisdictions), or as a combination of both. It requires defining the particular need, cost, and fiscal capacity issue to be addressed through a transfer; defining a group of representative taxes and representative expenditures to be equalized; and agreeing on the degree of equalization. All these decisions have both a technical and a political ingredient. In short, equalization is a complex undertaking both politically and practically. As an outcome of political negotiation, transfers are often overburdened with objectives, which may weaken desirable compensatory effects. Some countries do organize spatially targeted programs aimed at stimulating regional development at large with a focus on the private sector. However, those programs that include incentives such as tax breaks or subsidies often challenge coordination among the different interventions, including service delivery and taxation, and specific poverty and social programs. For example, in Malawi, transfers are not establishing sufficient levels of horizontal equity, as measured using a per capita standard as a reasonable comparator (World Bank 2012b). In Bolivia, distribution is driven by hydrocarbon revenues, which bear no relation to levels of poverty in the different provinces. If horizontal equity is recognized as a base for addressing the MDGs, then more effort needs to be put into fiscal equalization. The type and degree of equalization is, in the end, a political decision. Given the prominence of infrastructure challenges in the urban-rural dynamics, however, it is unlikely that full equalization for all sectors can or should be achieved. The right balance is likely to depend on the type of infrastructure needed and may vary with specific circumstances, such as subnational capacity and credit availability. In the case of infrastructure for social services, such as health and education, recurrent equalization grants may be needed to cover continuing operation and maintenance costs. For utilities and other infrastructure whose costs can be largely recovered through fees, credit-facilitating policies may be the most appropriate means of equalizing expenditures. For network infrastructure where costs cannot be recovered through fees, such as no-toll roads, a conditional grant may be most appropriate. Overall, it is clear that no country begins with a clean slate. More often than not, reforms of intergovernmental transfers are done at the margin and incrementally, as is demonstrated by Colombia’s current royalty reform, which achieves more equality for royalty resources in a gradual fashion. Other noteworthy efforts are currently being undertaken by Ethiopia, Kenya, Morocco, and Tajikistan, although the results remain to be seen. Governance for accountability Accountability is critical to tackle the MDG challenge. Accountability depends on the way authority is constituted, but it also depends on human resources management, an often forgotten but critical element for accountability and efficiency. All decisions on resource distribution require institutional arrangements and the
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Global Monitoring Report 2013 Rural
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© 2013 International Bank for Reco
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vi CONTENTS GLOBAL MONITORING REPOR
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viii CONTENTS GLOBAL MONITORING REP
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Foreword Global Monitoring Report (
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Acknowledgments This report has bee
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Abbreviations and Acronyms ADB Asia
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GMR 2013 Rural-Urban Dynamics and t
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4 OVERVIEW GLOBAL MONITORING REPORT
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10 OVERVIEW GLOBAL MONITORING REPOR
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Goals and Targets from the Millenni
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Progress toward the MDGs Only two y
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primary completion, and access to s
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FIGURE 1a Poverty rates (living on
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MDG 2 Achieve universal primary edu
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MDG 3 Promote gender equality and e
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MDG 4 Reduce child mortality In mos
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MDG 5 Reduce maternal mortality MDG
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MDG 6 Combat HIV/AIDS, malaria, and
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FIGURE 6e Children under age 5 who
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FIGURE 7b Access to sanitation by r
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Improving the measurement of develo
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1 Macroeconomic, Trade, and Aid Dev
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GLOBAL MONITORING REPORT 2013 MACRO
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2 Rural-Urban Disparities and Dynam
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GLOBAL MONITORING REPORT 2013 RURAL
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