Poverty and Human Development Report 2009 - UNDP in Tanzania

POVERTY AND HUMAN DEVELOPMENT REPORT 2009
As formula-based allocations have been put in place, the challenges have become clearer. The
current incentive system is reinforcing rather than alleviating disparities – areas with existing
schools, health facilities and other infrastructure receive greater allocations, while underserved
areas receive lower allocations. Going forward, allocations need to be grounded upon
assessments of LGAs’ capacity to deliver essential public services. Strong coordination in policy
and implementation by key stakeholders in the central government, notably PO-PSM, PMO-
RALG and MoFEA, will be essential.
Development Funds
The second phase of local government reform has been more successful in transforming
development funds transfers. Up to 2004 development grants to LGAs were small, consisting
mainly of non-formula-based development grants, such as the PMO-RALG Development Grant. 77
Most development funds to local authorities were provided through discrete donor-funded
projects, predominantly “area-based programmes” but also some sector support programmes.
In 2004, the Government and Development Partners established the Local Government Capital
Development Grant (LGCDG) system. Under this arrangement, all LGAs receive a discretionary
development grant of approximately US$ 1.5 per capita if they fulfil minimum conditions
regarding the quality and transparency of their development plans, financial management and
procurement systems. 78 In 2009/10, 98% of LGAs qualified for the capital development grant.
The LGCDG system has been declared by Government as the preferred modality for transfer of
development funds to LGAs. In addition to core LGCDG funding (approximately TShs 50 billion
in total), individual sectors, notably agriculture and water, have started to transfer funds along
these basic principles.
LGAs also receive substantial development funds in the form of project financing from donors as
well as budget funds from sector ministries which are shown under respective sector votes.
Overall, the LGCDG has been successful in providing LGAs with more autonomy in budget
planning. However, two challenges remain:
i) Given limited financial resources of LGAs, a balance must be struck between national
development objectives, such as expansion of secondary education, and priorities at the
local level.
ii) The LGCDG is still largely financed through project-based donor funds, rather than fully
integrated into, and funded by, the Government budget. Because of different streams of
financing, it is difficult to establish exactly how much is allocated and spent at LGA level.
77 See, for example, analysis in PricewaterhouseCoopers, 2004
78 For details see the LGCDG Assessment Manual – available at www.logintanzania.net
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