INTERGOVERNMENTAL FINANCING ARRANGEMENT REVIEW

 INTERGOVERNMENTAL FINANCING ARRANGEMENT REVIEW (IGFAR): A BRIEF SUMMARY

1.0 Background

The review of the current intergovernmental financing systems is a national government priority and agenda to support the decentralization reforms. The Provincial & Local Level Service Monitoring Authority (PLLSMA) at its meeting in Lae on 23 – 24th September 2020, has established a PLLSMA subcommittee on Intergovernmental Financing Arrangement Review (IGFAR) and endorsed the National Economic & Fiscal Commission (NEFC) and the Department of Treasury to chair and co-chair respectively. The PLLSMA sub-committee has been established and this team is comprised of very senior officers from key national departments/agencies. Preparation work on the review has already started.

The IGFA Review will look at the current intergovernmental financing systems, identify key issues and impediments and make appropriate policy recommendations to the national government for an appropriate fiscal decentralization system. This article gives a very brief background, key issues, the main objective of the review, the expected outcomes, the scope and framework and highly possible risks and mitigation options to minimize these risks.

2.0 IGFA Review Not New

This IGFA Review is not entirely new. A well planned, researched and intensive review in intergovernmental financing arrangement was undertaken was undertaken by the NEFC from 2002 to 2008.  Arising from this review, the Reforms in Intergovernmental Financing Arrangements (RIGFA) were implemented in 2009. RIGFA is reported as the best reforms in intergovernmental financing arrangements in the history of PNG. The current review is an upscale version of RIGFA. While RIGFA addressed function grants or the recurrent funding, this IGFA Review will look at all sub national funding systems (development & recurrent) in a more integrated, cohesive and coordinated in a more holistic manner.

3.0 Key Issues

The following and not limited to, are identified as the key issues or inefficiencies in the current intergovernmental financing systems.

• Inconsistencies – Functions & Responsibilities: Functions and responsibilities or expenditures assignments not properly mapped for each level government or government funded bodies/institutions at the sub nationals resulting in overlapping, duplication and inconsistencies and confusion as to who should be accountable for funding and performing the assigned functions.
• Add Hoc and Concurrent Reforms: Ad-hoc & concurrent institutional, legislative, political, administrative & sectoral reforms (DDAs, PHAs, City Authorities, greater autonomy arrangements, new provinces, LLGs, electoral boundaries etc.).
• Affordability Issues: Government cannot adequately fund funding arrangements – late release of funds and not meeting funding commitments.
• Imbalances & Equity Issues:  Imbalances: Vertical & Horizontal Imbalances Between the national & sub nationals – functions and responsibilities and related funding arrangements. Between province -  disparities  -  cost of providing same level of services,  financial, economic, demographic, geographic, infrastructure, education, health, law & justice, provincial & district administrations and others factors.
• Limited Sub National Revenue Mobilization: Limited sub national revenue mobilization has made sub nationals to heavily depend on national government funding/transfers to implement their budgets. Heavy reliance on national funding has also promoted incentives in raising provinces’ own internal revenues.
• Fragmented and multiple sub national funding systems: Parallel fragmented funding systems – not coordinated and integrated (SIPs, Function Grants, PIPs, TFF, Credit Schemes, SLA Agreements...) Development & recurrent funding not integrated.
• Governance, accountability, monitoring and reporting issues: Weak, inefficient, ineffective and fragmented governance, accountability, monitoring and reporting systems for different funding systems.

4.0 Problem Statement & Major Objective

The PLLSMA Sub Committee has endorsed the following as the key problem statement and major objective of the IGFA Review.

Problem Statement	Fragmentation and inefficiencies in the current intergovernmental financing systems have eroded the effectiveness in contributing to improved service delivery in PNG.
Main Objective	Recalibrate the current intergovernmental fiscal arrangements for an integrated, efficient and effective system that supports the National Government’s focus on decentralization reforms.

5.0 IGFA Review: Strategic Focus Areas and Expected Outcomes (Benefits)

Strategic Focus Area	Action/Activity	Expected Improvement Outcomes/Benefits
Fiscal Decentralization & Revenue Mobilization	Undertake Expenditure Assignment study (who is to do what at all levels of governments and government and sub national institutions (functions and responsibilities). Undertake Expenditure Assignment study (who is to do what at all levels of governments and government and sub national institutions (functions and responsibilities). Review current national government multiple fiscal transfer systems. Identify Imbalances (equalization) and also funding for targeted government priority areas. Sub national borrowing study. Review fiscal decentralization in the context of greater autonomy for the provinces. Review Current development partner funding modalities. Review AROB & NCD funding arrangements.	Clear demarcation of functions and responsibilities between different levels of government, institution and bodies. Clear demarcation of functions and responsibilities between different levels of government, institution and bodies. Proper costings established Sub nationals empowered to generate internal revenue through devolution of appropriate taxing powers. An affordable and equitable Intergovernmental fiscal transfer system for equalization and promoting other development priorities. Financing under greater autonomy arrangements. Funding through service delivery frameworks. Funding for inclusive economic growth. Sub national borrowing options identified. Common modalities established in engaging development partners funding.
Integrated Development Planning and Budgeting	Review and unbundle the current planning and budgeting systems and practices at various levels of governments and government sponsored institutions.	Integrated planning and budgeting coordinated in a more cohesive and holistic manner. Development and recurrent budgets  fully integrated.
Public Financial Management (PFM)	Review the current PFM platforms used by various government and government sponsored bodies involved in sub national funding.	Integrated governance and accountability intergovernmental financing system.
Policy, Institutional and Legislative	Review all the policy, institutional and legislative arrangements and frameworks adopted under the current different sub national funding systems.	A fully integrated policy, institutional, legislative and regulatory framework for the integrated fiscal decentralization system.
Policy, Institutional and Legislative	Review the current monitoring & evaluation systems adopted under different systems of sub national funding.	A fully integrated policy, institutional, legislative and regulatory framework for the integrated fiscal decentralization system.

6.0  Scope & Framework

The scope of the work will compromise of five (5) phases. It is estimated that the 5 phases will take 3 to 5 years.

Phase One	Consultation & Target Studies: A complete review of the current IGFA systems is undertaken through key studies and wider consultation with key stakeholders.
Phase Two	Policy Development : Basing on the findings in phase one, develop and make a major policy recommendation to the National Executive Council (NEC).
Phase Three	Adjust/Modify: Basing on the outcome of the NEC on the policy submission and parliament decision, design, develop and/or modify the current system.
Phase Four	Implementation: Implement the modified and integrated fiscal decentralization system.
Phase Five	Monitor & Reporting: Develop and implement an integrated fiscal decentralization monitoring & reporting system.

7.0  A Whole Government & Holistic Approach

The IGFA Review is a whole government approach and will be undertaken in a more holistic and cohesive manner. Wider consultation with relevant stakeholders will be a critical part of the review. In order to help achieve this, the Sub Committee to drive the review comprises of senior officers from the following key national departments and agencies. This list is not inclusive as relevant stakeholders can become part of the review committee as and when necessary.

PLLSMA Sub Committee Membership  - IGFAR

1. National Economic & Fiscal Commission- Chair

2. Department of Treasury – Co Chair

3. Department of Provincial & Local  Level Government Affairs

4. Department of Finance

5. Department of National Planning, Implementation & Monitoring

6. Department of Prime Minister & NEC

7. Department of Implementation & Rural Development

8. Department of Justice & Attorney General

9 Constitutional Law Reform Commission

10. National Research Institute

11: Department of Personnel Management

8.0  Potential Risks

The following are very high level potential risks that pose huge challenges to the progress of the IGFAR. Therefore detailed risk mitigation strategies and plans will be developed and executed to minimize these risks. There will be other minor risks apart from these major risk areas but these will be managed through the whole review period.

Major Risks	Mitigation Action/Options	Expected Outcome
COVID 19	Adopt Non contactable options and safe practices to continue to progress the review.	Safe practices adopted  & Minimum disruption to the review process.
Lack of Awareness	Develop and implement effective communication strategy and plans with appropriate messages.	Stakeholders are aware, participate and give input and support the review.
Lack of Political Support	Develop and implement a political engagement strategy and plans.	Politicians are aware, participate and give support to the review.
Lack of Funding for the Review	PLLSMA Sub Committee to present to Government for adequate funding. Seek Development Partner Support	Funding for the review is secured
Lack of appropriate leadership	PLLSM Sub Committee - Appointment of senior officers from key national department/agencies and sub nationals to drive the review	Effective leadership is provided to the success of the review
Lack of cooperation and engagement from national departments/agencies and sub nationals	Review Committee comprising of senior officers from key national departments and agencies and sub Nationals and Develop and implement an effective engagement  strategy & plans involving key stakeholders	Minimum resistance to change.   Holistic & Integrated and a whole government  approach is adopted for the review.

 

Download the IGFAR Concept Note & Discussion Paper pdfs below: